Price hikes of imported iron ore are results of China's rampant domestic competition, signaling the need for stronger regulation by the Chinese government, general manager Liu Jie of the Anshan Iron and Steel Group told the Economic Information Daily on Monday.

Last week, the company, together with another 15 leading Chinese steel manufacturers, turned down the price hike request of their Australian iron ore supplier BHP Billiton who tried to seek a freight premium of US$7.5 to 10 a ton on iron ore sold to China, which would push the price of iron ore to US$50.41 per ton, more than doubling the present price of US$25.  

Calling this request "unreasonable," the China Iron Steel Association has decided to hold a meeting late this month to ask more than 70 Chinese steel importers to coordinate their policies.

While negotiation between the association and BHP continues, Liu Jie said this price hike crisis has actually exposed the weak points of China's domestic steel industry such as over-exploitation of mineral resources, lack of unified production standards and rampant competition among small technically backward steel mills.

"With the fast increase of China's market demand for iron and steel products, iron ores were once sold as much as US$120.92 in China, nearly five times as much as the import price and thus invited overseas suppliers to raise their offers," Liu said.

If the price hike plans of overseas suppliers succeed, domestic steel manufacturers' production costs will soar. Consequently, they will turn to domestic mineral resources, which in turn may jeopardize China's limited mineral reserve and further destroy its natural environment, Liu said.

In Anshan of northeast China's Liaoning Province where mineral reserve accounts for more than one-fourth of the country's total, a dozen small companies are now exploiting one mine at the same time.

To rectify the market order, Liu proposed that China's regulatory authorities establish sound criteria to classify all domestic mining companies and restrict their market access in line with their capability in both environmental protection and technical innovation.

Liu confirmed the news that the Anshan Iron and Steel Group and the Benxi Steel, both situated in Liaoning, would be merged into China's second largest steel producer with an annual capacity of more than 20 million tons, next only to the Shanghai-based Baosteel.

He said that a successful merger would require the two state-owned companies to coordinate in many areas including taxation and employees' benefits.

Currently, It is an increasing trend for Chinese steel manufacturers to merge or coordinate with their competitors from both at home and abroad. Last June, the Anshan Iron and Steel Group and the Germany-based Thyssenkrupp Stahl AG jointly established a new company, the ANSC-TKS Galvanizing Co., Ltd whose designed annual production capacity is 400,000 tons of zinc plates for automobiles, the largest of its kind in China.

Liu said that cooperation with overseas companies would bring back investment and advanced technologies. To have a bright future, however, Chinese indigenous steel companies must rely on themselves and work together to figure out a way for sustained growth.

"Meanwhile," he said, "the governments must continue to tighten its supervision over the industry to avoid overheating and disorderly competition."

(Xinhua News Agency April 13, 2005)