According to the Shanghai stock exchange, Baoshan Iron & Steel, the listed unit of China’s biggest steel maker, has reported that its 2009 net profit fell 11 percent.

The subsidiary of Baosteel Group Corp said in a brief statement on the stock exchange’s website that its net profit in 2009 dropped to 5.8 billion yuan (850 million dollars) compared with 6.5 billion yuan the previous year.

The steelmaker gave no reasons for the drop.

Revenue also fell 26 percent to 148.5 billion yuan from 200.6 billion a year earlier, the company said in the statement posted Saturday.

Baoshan Iron had said earlier last year that it expected its revenue to drop in 2009.

China’s steel industry has suffered from the global financial crisis, which has impacted on demand for steel both domestically and abroad.

It was said from Wang Liqun, the new chief negotiator for iron ore contract talks of Baosteel Group Corp. — China’s biggest steelmaker that amid forecasts that prices may surge as much as 50 percent.

Wang, general manager of the raw material purchasing center at Baosteel’s Baoshan Iron & Steel Co., will replace Ding Shouhu, said the executive who declined to be identified because of company policy. Ding, a manager at the center, was the chief negotiator for the Shanghai-based steelmaker the past two years.

The appointment, along with a new negotiator for Rio Tinto Group, the second-largest iron ore exporter, indicates that Chinese steelmakers and miners want to start afresh after failing to agree prices last year. Chinese police have detained four Rio executives, including Australian Stern Hu, since July for allegedly stealing commercial secrets.

“Baosteel’s new negotiator faces a hard task as China has almost no bargaining power,” said Hu Kai, a Shanghai-based analyst with researcher Umetal.com. “China hasn’t even agreed to 2009 benchmark prices.”Baoshan Steel shares dropped 0.3 percent to close at 8.68 yuan in Shanghai. Rio’s shares closed 0.7 percent lower at A$78.62 in Sydney.

Wang and Chen Ying, vice president of Baoshan Steel, didn’t return calls seeking comment. Wang was a deputy general secretary of the China Iron and Steel Association in 2005 and 2006, according to the association’s Web site. The association had led the unsuccessful price talks last year.

Chinese Demands

The four-decade annual iron ore pricing system was fractured last year after Rio, BHP Billiton Ltd. and Vale SA, which together account for three quarters of traded iron ore, refused to meet China’s demand to cut prices by more than 33 percent during the global recession.

China is the world’s largest buyer of iron ore and last year increased imports by 42 percent to a record 628 million metric tons. Benchmark prices may surge 50 percent this year as the economy rebounds, Nomura Holdings Inc. forecast Jan. 11.

The Chinese police investigation into the Rio executives was completed this week, with the case now referred to prosecutors, both the Australian and Chinese governments said.

The arrest of Hu, the head of Rio’s iron ore unit in China, strained ties between Australia, the world’s largest exporter of iron ore, and China, its largest trading partner.

London-based Rio Tinto appointed Danny Goeman as the new negotiator with Asian steelmakers, reporting to Will Malaney who was the company’s chief negotiator, a spokesman said in December.

China Price

Rio needs to hear from China “as to exactly what their view is in relation to prices,” Sam Walsh, chief executive officer of the company’s iron ore unit, said Nov. 2.

China wants to set iron ore prices separately from the rest of the world to exercise its bargaining power as the largest buyer, the China Iron & Steel Association said Oct. 16. Annual contracts for China should start from Jan. 1, instead of April 1, the current practice, the association had said.

Cash prices of 62 percent iron-content ore delivered to Tianjin port in China last week climbed to the highest in at least 13 months, according to the Steel Index. Prices had jumped amid “panic buying” by Chinese mills concerned about the availability of cargoes from Australia, Goldman Sachs JBWere Pty. said.

The China Iron and Steel Association has said that China’s position in the talks has been weakened because local steel mills — especially smaller operators — have failed to form a “united front” against the miners.

However, the consolidation process has so far been slow, with provincial governments reluctant to accept plans that would reduce local capacity and eat into tax revenues.

In an effort to step up efforts, the Ministry of Industry and Information Technology said in a draft policy document released last month that steel firms with production capacity of less than 1 million tonnes per year would be eliminated from the sector this year.

Beijing will also raise environmental standards on steel mills, forcing them to upgrade their equipment or have their licenses revoked, another way of trying to impose “order” on the sector, the ministry said.

Both the ministry and CISA have said that restructuring will be the “priority” for the sector in 2010.

It was reported that after the government restrained lending, Baoshan Iron & Steel Co., China’s largest steelmaker, kept prices for its main products unchanged for February delivery.

Prices were kept level for most flat products, including hot-rolled, cold-rolled, zinc-galvanized sheets and silicon steel, from January, the Shanghai-based steelmaker said today in a statement on bsteel.com.cn, its trading Web site.

“The market has widely expected that Baoshan would raise prices for February,” said Luo Wei, a Shanghai-based analyst with China International Capital Corp. “Baoshan made such a decision probably because the government is tightening.”

China raised the proportion of deposits that banks must set aside as reserves this month, faster than economists expected, as record lending threatens to stoke inflation and create asset bubbles.

Rising steel demand prompted Baoshan Steel to raise some prices for January by 8 percent, the first gain since September.

Baoshan Steel shares rose 0.6 percent to close at 8.71 yuan in Shanghai. The benchmark Shanghai Composite Index gained 1.4 percent.

Chinese steel prices have surged 18 percent since Oct. 15, a low in 2009, as the government’s $586 billion stimulus spending boosted demand, and manufacturers and traders ran down inventories.

According to statistics released by the Ministry of Industry and Information Technology yesterday, China’s steel industry realized profits of RMB 143.3 billion in the first 11 months of last year.

The country’s major steel mills earned a combined profit of RMB 44.8 billion in the period, 67% less than in the same period of the previous year, said the ministry.

In 2009, the country eliminated 21.2 million tons of outdated iron smelting capacity and 16.9 million tons of steel smelting capacity.

In the period from January to November last year, the country’s steel output rose 12.1% year on year to 520 million tons, the total output last year is expected to reach 565 million tons.

It was reported that China’s surging demand for steel this year is expected to dominate the landscape of the steel industry as never before.

Already the world’s largest producer by far, the country is expected to rev up production by nearly 10%. But the higher output likely won’t exceed demand, pushing prices higher world-wide for steel, its raw materials and even coal.

Steelmakers, which idled dozens of mills and cut production as the global economy slowed, are now ramping up. Rio Tinto, which sells the most iron ore to China, is restarting production. Iron ore is a key ingredient in making steel. Arcelor Mittal, the world’s largest steel producer, is raising prices, as is China’s largest steelmaker Baosteel Group Corp.

China also is trying to unify a fragmented and sprawling domestic industry to present a strong, unified voice in price negotiations for sales and purchases of raw materials. The idea: Capitalize better on the country’s huge appetite for the materials that make everything from refrigerators to bridges.

China is expected to produce a record 600 million metric tons this year-about half the world’s total output. The next biggest producer, Japan, will make just one-sixth of what China is expected to produce. The U.S. was fourth in production, behind Russia, last year.

China’s continued resilience was the dim light in an otherwise dreary year for miners and steelmakers, marked by layoffs, mine closings and production and investment pullbacks as prices for commodities tumbled. And it looks to be the beacon going forward, along with India, to a lesser extent.

While other economies are strengthening, they don’t offer the same potential for growth as China, which makes penetrating that market critical. “Chinese steel production and demand is likely to continue its inexorable rise,” says Peter M. Fish, economist for MEPS International, a steel consulting firm.

That, in turn, is good news for all metals and minerals sellers.

Iron-ore spot prices, at about $110 a metric ton, have been climbing toward their highest level in more than a year. Coal prices for steel mills and electricity production have surged by more than 30% as the Chinese last year curbed production due to environmental concerns. Copper, aluminum and zinc prices also have risen.

“The recovery of all commodities has exceeded expectations,” says David Butler, analyst at J.P. Morgan Cazenove.

Australian ports are becoming congested again, with coal ships in line on the ocean, waiting to load and unload.

Robin Walker, a spokesman for Rio Tinto, the largest seller of iron ore to China and which sells a substantial amount of coal, says its economists are revising projections from August regarding Chinese demand. “The new update could show that growth is stronger,” he says.

BHP Billiton, the world’s largest miner, Rio Tinto, Australia’s Fortescue Metals Group Ltd. and Brazil’s Vale all are increasing production of iron ore, and in some cases coal, to meet the expected increased demand in China.

China’s Baosteel, an industry bellwether, told buyers last week that it would increase steel-sheet prices by 5% beginning in February, marking the third steel price increase in as many months.

“With January hikes now sticking well, we expect to see further price increases announced in China as well as Europe and the US,” says Michelle Applebaum, an analyst at steel research firm MARI in Chicago. “Chinese steel demand is profound, and rising raw-material costs are driving an inflationary spiral in the region as steelmakers and their customers clamor for material.”

Massive government stimulus and infrastructure plans-including for rails, roads and bridges in eastern China and for general construction and factory building in the western part of the country)-are fueling demand. Most of the steel production will be consumed internally, says the China Iron and Steel Association, the main steel trade group in the country.

China’s exports have dropped between 10% and 50%, depending on the product and country in the last year, which is welcome news for ArcelorMittal Chief Executive Lakshmi Mittal. Mr. Mittal says that last fall, China’s steelmakers remained fairly disciplined about keeping their steel from flooding foreign markets, which has helped steelmakers around the world raise prices.

The downside for ArcelorMittal and other steelmakers is that raw-material prices will likely rise as the companies compete with Chinese steel mills to secure the coal and iron ore needed to fuel and feed steel plants.

This week, Australia and China signed a $3 billion coal deal, the largest buyout by a Chinese firm in Australian mining history. The purchase of Australia’s Felix Resources Ltd. by Yanzhou Coal Mining Co. could open the door to more acquisitions this year.