BUSY PORT: The iron ore dock at Caofeid an Port in Tianjin bustles with activity (HU ZHIQIANG)

Annual iron ore price talks between China and top international miners, which were scheduled to end on April 1, have yet to yield results, as Brazil's Vale and BHP Billiton of Australia want to increase 2010 ore prices by 90 percent from the previous year. The two ore giants are also looking to downsize the contract from a yearlong commitment to a quarterly one.

But China's steel companies, represented by Shanghai Baosteel Group Corp., in their talks with the big three iron ore suppliers—Vale, BHP and Rio Tinto—said they would resist any price increases and have even considered a boycott of the foreign suppliers if the issue is not resolved soon.

Officials with the Ministry of Commerce, the Ministry of Industry and Information (MII), as well as the China Iron & Steel Association (CISA) hope to maintain the current annual pricing system and keep the price at a reasonable level. They also want to ensure the steady and sustainable development of the international iron ore trade and steel and iron industries.

But according to CISA, the negotiation this year is no longer a "negotiation," but rather an "ultimatum"—the three largest miners threatened to withhold shipments unless a seasonal contract is accepted.

China imported 69.9 percent of its iron ore needs last year. Around 70 percent of those imports came from the three biggest suppliers.

Resisting the hikes

Two Japanese steelmakers accepted a 90-percent increase in iron ore prices from Brazil's Vale for the April-June period on March 30, and Korean steel mills are about to accept this price hike as well, said Vale.

BHP Billiton also announced on its website that it has reached an agreement with other Asian clients on short-term contracts.

While the big three gain ground by setting contract prices at record highs and are determined to end the decades-old annual benchmark pricing system, China's licensed iron ore importers are unwilling to accept the change.

CISA and the China Chamber of Commerce of Metal, Mineral and Chemical Importers & Exporters (CCCMC) summoned licensed importers, including steelmakers and traders, to an emergency meeting in Beijing on April 2, to address the negotiation deadlock. The two organizations urged them to observe a two-month boycott of iron ore produced by the three miners in order to send a message of "no" to a quarterly-based pricing system and a 90-percent price hike.

CISA reports said steel mills have reserves that would last two months, in addition to 75 million tons awaiting use in harbors nationwide. Production at domestic mines increased 18 percent during the January-February period, adding to China's available iron ore. CISA holds that China is capable of a two-month boycott on the big three miners.

The two organizations also cut the number of iron ore importers—those who imported less than 1 million tons of iron ore last year will not have their importer license renewed this year.

But such efforts may be futile, since price hikes are all but guaranteed due to strong demand, though China continues to push on with negotiations with the three ore miners, Chairman of Baosteel Group He Wenbo said on March 31.