Chinese steel mills are still locked in negotiations for this year's long-term iron ore prices with three major suppliers as the two sides have failed to agree on the size of price cuts, according to a leading industry association.

"Chinese steel producers and miners have agreed that iron ore supplies have surpassed demand this year and iron ore price should drop largely," Luo Bingsheng, vice-chairman of the China Iron & Steel Association (CISA), said yesterday. "The two sides have not yet reached an agreement on the margin of the price cuts."

Chinese steel producers, led by Baosteel and the CISA, have been in talks with BHP Billiton, Rio Tinto and Brazil's Vale since the start of the year to finalize term prices.

The CISA said the Chinese side is still asking for a reduction of up to 40 to 50 percent from last year's prices after iron ore prices went up by nearly 400 percent in the past five years. The suppliers, however, intend to keep the price cut within 20 percent.

Luo said a price cut of 20 percent would grossly underestimate the oversupply of iron ore.

Since the long-term contracts are yet to be finalized, most of the purchases are being made at discounts of about 30 percent to 40 percent over last year's prices. But the miners are not willing to sign long-term contracts at such levels on expectations that there may be a revival in demand.

China imported a record volume of iron ore in March, about 52.08 million tons. It beat the previous record set in February when the country imported 46.74 million tons of iron ore.

The imports have pushed China's stockpile of iron ore at ports to 70 million tons, more than double the normal level of 30 million tons. In the first quarter, domestic iron ore output increased 2.59 percent year on year.

"The high stock of iron ore in the country is unfavorable for miners in the negotiations," Luo said.

Chinese steel makers reported a combined loss of 3.3 billion yuan for the first quarter of 2009 as oversupply put pressure on product prices. The following two quarters are also expected to be tough for steelmakers, according to the CISA.

Meanwhile, Luo said the industry has asked the government for more export tax rebates to help businesses boost exports when demand remains weak both at home and abroad.

"We have suggested that the government should give export tax rebates to steel products as soon as possible" and after that the country's steel exports have dropped dramatically in the past few months, he said.

China raised export tax rebates for some steel products since April 1, but no details are available on the size of the increase.

(China Daily April 29, 2009)