With last year's contracts set to expire soon, Chinese steel mills are in a quandary as to where to source ore supplies from as the deadlock continues.

Steel mills in Shanxi Province have reportedly signed long-term contracts with foreign miners for this year's iron ore supply despite the national steel association banning steelmakers from making individual contracts.

The Southern Metropolis Daily reported on Friday that a number of steel enterprises in the province had already jointly negotiated supply deals with overseas miners, citing Zhu Fengliang, secretary general of the Shanxi Iron and Steel Association.

A local newspaper Shanxi Youth Daily cited unnamed sources from local steel association and steelmakers as saying that some steel mills have recently inked the agreements with three major suppliers, Rio Tinto, BHP Billiton and Vale. It said these mills did not accept the 33 percent cut on last year's price, which has been agreed by Japanese and South Korean players but it did not elaborate.

The China Iron and Steel Association (CISA), which leads the country's talks with miners, insisted on a 40 percent cut in the price of iron ore from Australia.

An official with the association said he "has no idea of the deal" by Shanxi mills. Shanxi steel association was also unavailable for comment on Friday.

Earlier reports had said 35 Chinese mills had already signed supply contracts involving 50 million tons of imports with Vale. But the CISA said any individual deal would not be recognized and the government could revoke the import licenses of any enterprise that undermined China's negotiating position by signing its own supply contracts.

The association is also reportedly seeking to stop Chinese mills and traders from taking part in setting "speculative" prices by taking part in auctions on the spot market.

Chen Ying, board secretary with the country's leading steelmaker Baosteel, on Friday urged domestic steel mills to take joint actions in the negotiation with overseas suppliers.

China, which produces about 500 million tons of crude steel annually, largely relies on iron ore imports from the Big Three miners which hold 70 percent of the global trade.

With only two weeks to go before last year's contracts expire, the CISA said on its website on Thursday that it has recently "exchanged opinion on iron ore cooperation" with Brazil's Vale and Australia's Fortescue Metals Group.

Insiders said it implies the association may seek deals with other suppliers.

(China Daily June 20, 2009)