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Chinese steel mills pay $26b more for iron ore imports

Chinese steel mills pay $26b more for iron ore imports

Write: Wystan [2011-05-20]

The Chinese steel industry paid much more for iron ore imports last year because of the soaring prices, resulting in lower profitability or even losses for some steel makers the Economic Information Daily reported Wednesday, citing information from an internal industry meeting.

China's steel makers paid $26.1 billion more to purchase iron ore from the world's top three mining magnates from January to November in 2010, while the industry's main business is expected to yield only 77 billion yuan ($11.7 billion) during the entire year, it reported.

According to the report, the 40-year-old long-term supply agreement system was abolished, when BHP Billiton made seasonal contracts with Japanese steel mills in March last year.

Vale, a Brazilian mining exporter, decided to set its first quarter export price to China based on the average price of Platts index from September 1 to November 30. It was calculated that the price is likely to hit $149.2 a ton, 8.8 percent higher than before, it reported.

China's steel industry would pay an additional cost of at least $11.3 billion if the iron ore exporting price stays at the November level in 2011 of $145.3 a ton, said the report, which would be the equivalent of the industry's full-year profit for 2010.

"A good many of steelworks are in the red," the newspaper cited an official with the China Iron and Steel Association (CISA) as saying.

According to data from the Ministry of Industry and Information Technology, the average rate of profit for the steel industry was 3.5 percent, 2.5 percent lower than the average level across all industries.

"In 2011, China's steel industry will enter a new era with high cost, high price and low profit," the report cited the official as saying.