DALIAN, Liaoning - China's iron ore imports this year will not exceed last year's, with domestic ore production touching 1.1 billion tons, the China Iron and Steel Association (CISA) said.

Shan Shanghua, secretary- general of CISA, said China would recycle more steel scrap to reduce iron ore imports. Around 100 million tons of steel scrap is expected to be generated this year.

Shan, whose organization is the main representative of Chinese steel mills in the iron ore price negotiations, also said prices of iron ore should be linked to steel prices rather than iron ore indexes.

He made the remarks at an industry conference in Dalian on Tuesday. The conference is usually regarded as an unofficial start of the negotiations for the benchmark price for the next contract year.

He said the iron ore indexes reflected a small portion of the iron ore trade that passed through the spot markets and it doesn't reflect the real market.

However, global miner Rio Tinto Group said ore demand by China would remain strong for the rest of the year and could even exceed last year's demand level despite China's decision to cut power supplies to steelmakers to fulfill energy saving targets.

"We haven't seen any drop in our forward shipping schedule for the rest of this year. We are running at full capacity," said Warwick Smith, managing director of sales and marketing for Rio's iron ore business. "Imports by China will remain at last year's level, if not better,."

Most steel mills in Hebei province had to slash production this month when the central government limited power supplies to steelmakers. For months, production by steelmakers was reduced due to weak demand from the real estate and automotive industries. Ore, which is used in steelmaking, saw demand by China rises to 628 million tons last year.

The three biggest exporters of iron ore - BHP Billiton Ltd, Vale SA and Rio Tinto - abandoned a 40-year tradition of setting prices annually and shifted to quarterly-based contracts, which is linked to the iron ore indexes.

"We have no discussion with any steel mill on monthly pricing system," said Smith, adding that Rio is open to discussion with its clients from South Korea, Japan and China on next year's pricing mechanism.

He said Rio has no plans to price iron ore on a monthly basis as it will destabilize the quarterly pricing mechanism.

China Daily

(China Daily 09/29/2010 page13)