An agreement was reached Thursday evening between Shanghai-based Baosteel Group and Brazilian Companhia Vale do Rio Doce (CVRD) on the contract price of iron ore in 2007.

The price will rise 9.5 percent to 72.11 US cents per metric ton unit for the next financial year, said a Baosteel source.

Baosteel is the world's first steel company to settle an iron ore contract with the CVRD for the financial year beginning April 1, 2007.

It's also the first time over the past four years that China's steel companies have directly reached an agreement with the world's leading iron ore provider rather than following the benchmark price settled by their foreign counterparts and the suppliers.

Baosteel failed to reach agreement, on behalf of all China's steel mills, regarding the iron ore price with the world's three main suppliers -- BHP Billiton, Rio Tinto and CVRD -- for three years in succession.

This placed China's steel companies in a very disadvantageous situation as they had to pay no matter how high the price was, said insiders.

The three iron ore giants raised prices for Chinese steel mills by over 70 percent in the 2005 financial year. The steel companies were then wrong-footed by CVRD this year and forced to accept a 19 percent rise.

Market analysts said the 9.5 percent growth rate basically reflects supply and demand in today's world iron ore market. Though China still has an increasing hunger for iron ore the growth rate has slowed.

On the other hand China saw declining domestic steel consumption this year and the country's fixed asset investment in the industry is falling.

Analysts say the shrinking growth rate of the iron ore price also reflects a balance of interests between China's steel makers and the international iron ore suppliers.

China is the world's biggest iron ore consumer and it certainly needs support from the international suppliers, said a senior manager with Baosteel.

But the manger observed that the world's leading iron ore providers would also grow dependent on China's steel industry in the future. As a result a long-term stable and strategic cooperative relationship should be formed between the two parties.

Baosteel has more than 30,000 employees and its output exceeded 20 million tons last year.

(Xinhua News Agency December 22, 2006)