China, the world's biggest iron ore consumer and importer, yesterday raised the threshold for domestic steelmakers and trading companies to qualify for imports of the main raw material used to make steel for a second time since 2005.

 

Iron ore importers will now require registered capital of at least 20 million yuan (US$2.56 million), double that currently needed, according to a joint statement from the China Iron & Steel Association and the China Chamber of Commerce of Metals, Minerals & Chemical Importers & Exporters.

 

Firms will also be required to have imported at least 700,000 tons of iron ore last year. This is up from the previous threshold of 300,000 tons. There are 118 iron ore importers in China, including 70 steel mills and 48 trading companies.

 

This number of importers will drop when the new policy comes into effect in February, said Luo Bingsheng, vice-chairman of the China Iron & Steel Association. Luo declined to reveal how many importers the association believes will survive.

 

In May of last year China cut the number of iron ore importers from 523 to the current level by introducing stricter industry regulations.

 

The latest policy came after China's top steel group, Baosteel, representing more than 100 steel mills in China last week agreed with CVRD from Brazil and Australia's BHP Billiton and Rio Tinto - the world's three biggest iron ore suppliers - on a 9.5 percent price rise for 2007. The rise follows a 19 percent increase this year and a 71.5 percent increase in 2005.

 

The three suppliers control over 70 percent of the global iron ore market and have been raising prices in recent years partly due to Chinese importers' rampant purchasing at high prices. "We expect the new regulation will put iron ore imports in order," Luo said.

 

He said the new policy would add strict resource-saving and environment requirements for domestic steel mills aiming to qualify for iron ore imports.

 

Both Luo and Chen Haoran, chairman of the chamber of commerce, encouraged small steel mills unable to qualify for iron ore imports to find eligible companies as their "agents" in an effort to secure supplies.  

 

However, according to the new policy, importers will be forbidden to sell iron ore to steelmakers that haven't followed government orders to eliminate their outdated production capacity. Luo said companies wishing to qualify for iron ore imports should join the steel association or the chamber of commerce and abide by their "coordination and self-discipline measures." 

 

Luo estimated China's iron ore imports would amount to 325 million tons this year. This is a rise of 18.2 percent from 2005. The imports would account for almost half of the global iron ore trade. Imports next year will grow by 30 million tons or 9.2 percent, he said.

 

Luo and other industry officials predicted earlier that a balance between the global iron ore supply and demand could be expected thanks to swelling production in China and abroad.

 

Domestic iron ore production is forecast to surge by 28.8 percent to 644 million tons this year. In 2007 it would grow by 10 percent, the association predicted.

 

Both Luo and Chen yesterday said Baosteel's deals with CVRD, BHP Billiton and Rio Tinto were positive steps for the industry in China. "We're satisfied with Baosteel's performance in the negotiations this year," Luo said. "The price increase (of 9.5 percent) is acceptable as Chinese steelmakers enjoy good profits."

 

The nation's top 82 steel companies reported 81.1 billion yuan (US$10.4 billion) in combined profits in the first 11 months of this year. This is a climb of 7.64 percent from a year ago.

 

Luo also predicted crude steel production in China would rise by 18 percent this year and reach 420 million tons. Production in 2007 was expected to rise by a slower rate of 10 percent, he said, to 462 million tons.

 

(China Daily December 29, 2006)