VIBRANT DEMANDS: Despite the economic slowdown, China is importing a rapidly increasing amount of iron ores (FAN CHANGGUO)

After months of seesawing, China's iron ore negotiators appear to be breaking through the tight encirclement of suppliers.

On August 17, the China Iron and Steel Association (CISA) announced that Fortescue Metal Group Ltd. (FMG), the third-largest Australian mining company, had agreed to cut the price of iron ore fines by 35 percent—slightly sharper than the 33-percent discount agreed between Rio Tinto and the Japanese mills. FMG will supply fines at 94 cents per dry metric ton unit, and iron ore lumps at 100 cents per dry metric ton unit, a 50-percent drop, for the second half of 2009.

Analysts estimate the deal could save Chinese steel companies around $350 million in resources purchases.

In return, China would, by September 30, provide up to $6 billion in financing for the emerging miner that is embarking on an infrastructure-building spree. FMG was also guaranteed a "priority" in next year's annual pricing talks, a needed boon for tapping into China, the world's largest iron ore importer. Despite a depressed economic mood, China imported 297 million tons of iron ore in the first half of this year, nearing 70 percent of last year's total amount.

Under the traditional pricing regime that has been put in place since 1981, if one of the three major producers—namely the Brazilian miner Companhia Vale do Rio Doce, the Australian Rio Tinto and BHP Billiton—struck an agreement with a major steel maker, it would spontaneously prevail as a benchmark price for the rest of the industry for the ensuing 12 months.

But the recent regime seems deadlocked so far.

Seeing a free fall in domestic demand, China has been asking for a hefty 40 percent price cut. But the miners resisted compromise, gambling that the Chinese demands will soon bounce back this year.

Eventually, Baosteel Group Co., the largest steelmaker in China by sales and the sixth largest in the world, failed to reach a deal with the miners after missing the June 30 deadline and, in the end, the contract expiration allowed the miners to sell ores off at spot prices. Still, the market is moving in the miners' favor. With spot iron ore prices hovering above $100 a ton, the Chinese side has found itself under growing pressures to renew the long-term deal.