The majority of China's 523 iron ore importers will be shut out of the world market by a higher threshold on qualifications for importers, which was created last week and will be implemented on May 1.

But this will not necessarily lead to a decline in iron ore imports this year, said Luo Bingsheng, executive vice-chairman of the China Iron & Steel Association (CISA).

"We are now checking the qualifications of the importers according to 10 minimum qualification requirements, and those who fail to meet the requirements will lose their import rights," Luo, also a member of the Chinese People's Political Consultative Conference (CPPCC), said on the sidelines of the ongoing CPPCC meeting.

The association worked out the requirements jointly with the China Chamber of Commerce of Metals, Minerals and Chemical Importers and Exporters last week. Luo said steel enterprises responded actively to the move.

The move will support the Ministry of Commerce's new automatic import licence system on iron ore imports implemented on March 1.

Although he did not elaborate on the requirements, he said the target is to allow only large enterprises to reserve the right to bargain in the world market.

"We aim to build normal trade order through standardizing the market and competition," he said. "We had too many importers."

Without effective coordination, the steel industry endured blind imports, fierce competition and a push in prices over the past few years, especially in 2004.

"If, for example, we had only around 100 importers, it would be much easier for us to implement coordination and to strengthen self-discipline to curb blind competition," Luo said.

A lack of coordination and unhealthy competition are blamed for Chinese buyers' weak bargaining power in price negotiations with foreign suppliers, despite the fact that China is currently the largest importer of iron ore in the world, with its import volume surging by over 40 per cent last year to hit 208 million tons.

A frequently cited example was that on February 28, Shanghai Baosteel Group, on behalf of 13 Chinese steel mills, followed Japanese steel firms in agreeing to a 71.5 per cent price hike for iron ore this year with Australian and Brazilian suppliers.

"Through better coordination and self-discipline, we can speak louder in the world market," Luo said.

The surging price will vigorously stimulate domestic production of iron ore this year, he said.

In January alone, iron ore production in China increased by 5.12 million tons, a jump of 31 percent year-on-year.

Meanwhile, steel firms will first digest the 40 million tons of iron ore stocks piled up in Chinese harbours.

"As a result, it is very likely that China's iron ore import volume this year will be below earlier expectations," Luo said.

Moreover, the tight supply situation in the global iron ore market might reverse in the coming years as the world's three major producers plan to increase their production capacity by 120 million tons in three to five years.

"We may even witness an oversupply in the market, which is not good for the suppliers," Luo said. "Big (price) ups are always followed by sharp downs."

However, he admitted that the domestic steel price will remain at a high level due to the iron ore price hike and the estimated 20 percent price gap between the domestic and international market.

"Prices for some steel products have already gone up," he said. "I think that's normal."

(China Daily March 7, 2005)