Minister: China wants more say over iron prices

[August 13, 2009]  BEIJING (AP) -- China affirmed its determination Thursday to tighten control over its huge steel industry and press foreign miners to cut iron ore prices, announcing a three-year ban on new mills and saying it wants more influence over costs.

Industry Minister Li Yizhong complained that "disorderly competition" has pushed up iron ore prices, caused a glut of production capacity and caused "serious losses."

China's steel industry is the world's largest but has failed to translate that into clout in negotiating iron ore prices. Beijing put a state-sanctioned group in charge of negotiating this year's supply contracts but talks are deadlocked six weeks after the last agreements expired June 30.

"I believe China should have some say in the international trade of iron ore, and I believe our influence is not enough," Li said at a news conference.

Li gave no update on the price talks or the case against four Rio Tinto Ltd. employees who were detained July 5 and formally arrested this week on charges of infringing trade secrets and bribery. Chinese media say they were accused of paying bribes to get confidential information on China's negotiating stance in the price talks. The other major miners are BHP Billiton Ltd. and Brazil's Vale SA.

Rio agreed with Japanese and South Korean mills to cut prices by 33 percent, but China is holding out for a bigger reduction. China consumes up to 60 percent of annual global iron ore production.

"We hope the major iron ore suppliers should bear in mind the long-term, fundamental interests of the industry itself and the longstanding friendly cooperation with China, and deal with this issue in a fair manner," Li said.

Beijing is trying to create an elite group of Chinese steelmakers by arranging mergers among midsize producers and shutting down smaller mills. Li said his ministry is working on a new merger plan, though he gave no details.

China has annual production capacity of 660 million tons of steel, while demand is just 470 million tons, according to Li. He said companies are adding new capacity that will expand production by 58 million tons.

"If this trend continues this industry will not have a future," Li said. "My ministry will not approve any expansion-related projects in the iron and steel industry. I would like to call on the whole industry, all iron and steel producers, not to construct any new projects within three years."

Li called on steelmakers to cooperate with the China Iron & Steel Association as it negotiates this year's ore prices. The government has critized small mills for making their own deals with suppliers.

"They should not negotiate with the suppliers themselves," Li said. "They should choose one representative to negotiate on behalf of all Chinese iron and steel enterprises to have negotiations with the three major iron ore suppliers. I believe this is reasonable."

[Associated Press; By JOE McDONALD]

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