The Chinese Government has reiterated its belief that the growth in demand for iron ore will slow down this year, a statement that comes just before a new round of iron ore contract price negotiations.

China's demand for iron ore is likely to increase by between 45.9 million and 59.8 million tons this year from a year ago, the National Development and Reform Commission (NDRC) said in a statement published yesterday on its website.

The commission's prediction was based on calculations of the country's steel production.

The figures are much lower than the 121.8 million tons growth in 2005 and 75.9 million tons growth in 2004.

China is scheduled this year to shut down a number of small mills. This is expected to reduce China's demand for iron ore by 60 million tons.

Domestic production of iron ore also increased over the past two months, the NDRC said.

Iron ore output by major domestic enterprises stood at 54.7 million tons in the first two months of this year, reflecting an increase of over a quarter from a year ago.

The commission predicted that China's iron ore production would total 540 million tons this year.

"That means an increase of 120 million tons from last year. This is expected to replace around 60 million tons of imports," it said.

The fourth round of this year's iron ore price negotiations between China's steel makers and major suppliers, including Brazil's Companhia Vale do Rio Doce and Anglo-Australian groups Rio Tinto Ltd and BHP Billiton Ltd, are expected to start again next Monday.

The Chinese side is being led by its largest steel producer, Shanghai Baosteel Group.

The two sides failed to reach an agreement on prices for this year during the previous three rounds of talks because suppliers insisted on price increases that Chinese companies declined to accept.

An unidentified source was quoted by Xinhua News Agency as saying that "the main contributor to the current deadlock is a failure by the suppliers to comprehend the determination of the Chinese side to eliminate disorder and instability in supplies over the long term."

The negotiations are likely to extend beyond April, when delivery for the new year begins.

Chinese mills and iron ore traders accepted a 71.5 percent rise in iron ore prices at last year's talks. The price was set in talks involving Japanese companies.

(China Daily March 24, 2006)