It is reported that China Iron & Steel Association (CISA) Tuesday denied media reports that it had decided to suspend price negotiations with Australian iron ore giants Rio Tinto and BHP Billiton. It said speculative behaviour in the spot market had led to high price rises, forcing it to suspend the negotiations with Australia’s Rio Tinto and BHP Billiton.

Media reports said Monday that CISA decided to temporarily suspend the on-going iron ore price talks to evade unreasonable interruptions from the spot market where iron ore prices have been distorted.

But CISA refuted the above reports, saying that it never released such a statement and that its talks with Rio Tinto and BHP Billiton are underway.

Xu Zhongbo, a professor of the University of Science & Technology Beijing, noted that the iron ore price talks going on between CISA and Australian iron ore suppliers have entered into the most challenging period. It’s unlikely, said Xu, that any agreement can be produced in the short term.

Steel spot prices both on the domestic and international markets are currently surging, driving up steel production and subsequently iron ore demand.

However, Chinese steel plants may begin cutting output from the fourth quarter due to possibly arisen faltered steel demand, which may favor China in the iron ore price negotiations, Xu added.

It is reported that annual iron ore price negotiations are “definitely not over,” a negotiator for the China Iron and Steel Association told the Caijing financial news organisation. However, it acknowledged that some mills had agreed to a 33 percent cut as reported earlier.

Reuters reported on Wednesday that in the absence of a formal settlement between the Chinese steel industry and iron ore suppliers Rio Tinto and BHP Billiton, major Chinese mills had agreed to pay 33 percent less than the 2008 prices, in line with settlements reached by Japanese and Korean mills.

The price agreed by the Chinese mills is not final, the negotiator said, adding that “once the Chinese iron ore price comes out, they will be reimbursed or pay more based on that final price.”

Sources had told Reuters that the China Iron and Steel Association, which had taken over as lead negotiator in the talks this year and was holding out for a better price, would not formally acknowledge the mills’ interim deals.

This year’s negotiations have been particularly fraught, and reached an impasse earlier this month when four members of Rio’s iron ore team in Shanghai were detained for allegedly improperly acquiring state secrets.

China’s flagship steel mill, Baosteel, said in a statement sent to Chinese media that none of its employees had been detained or assisted in the investigation. Chinese media had earlier reported that the lead negotiator for previous years’ talks, who hailed from Baosteel, was among those investigated in the probe.

Traditionally, all the mills settle at whatever price is reached between any mill and any of the three miners, BHP, Rio and Vale. The Chinese mills’ agreements range in duration, the sources had said.

It was said from Yao Jian, spokesman of China’s Ministy of Commerce (MOC), that the detention of employees of Anglo-Australian mining giant Rio Tinto on spying charges is an individual case and will not hurt Sino-Australian trade at a press briefing Wednesday.

It would also not affect China’s foreign trade and foreign investment as China had been improving its legal system, said Yao.

He said the two countries were important trade partners and had sound cooperation in raw materials, agriculture and free trade talks.

China had been improving its foreign investment environment, said Yao.

He said China would further lower the threshold of foreign investment and improve industrial and regional policies to attract overseas investment.

Data from China’s Ministy of Commerce Wednesday showed China’s foreign direct investment (FDI) dropped by 17.9 percent to 43 billion U.S. dollars in the first half year on year.

Hebei Iron & Steel Group (Hebei Steel) has overtaken industry “dragon head” Baosteel in terms of output, giving it the clout to share the platform with the Shanghai producer in price setting and negotiations with overseas ore suppliers, after a major restructuring late last year.

Figures from the Ministry of Industry and Information Technology showed that Hebei Steel has displaced Baosteel from the top slot in May with a total output of 3.15 million metric tons. Baosteel produced 3.13 million tons of steel products that month.

The latest count, of course, is unlikely to have any material impact on the ongoing Baosteel-led price negotiations with foreign ore suppliers. But industry analysts said the rise of Hebei Steel is significant to the future development of the industry, especially when the company is embarking on the second stage of restructuring by grouping together its three listed subsidiaries and two privately held units to form a mega steel conglomerate with a public listing.

As earlier reported, the proposed merger calls for the acquisition by the principal listed subsidiary, Tangshan Iron and Steel, of the assets of the other listed subsidiaries, Handan Iron and Steel and Chengde Xinxin Vanadium and Titanium Co. When the transaction is complete, Tangshan will be the sole remaining listed entity of Hebei Iron.

In the second stage of the restructuring, Hebei Steel said it would inject the quality assets of its unlisted subsidiaries, Wuyang Iron and Steel and Xuanhua Iron and Steel, into the remaining listed arm.

The proposed transaction, if it goes through, will catapult Tangshan Steel into the forefront of steel producers with an estimated annual output in excess of 30 million tons, challenging Baosteel for the top spot among the nation’s steel producers.

As for now, Baosteel still remains the king of the road.

“I don’t think by producing a little more steel Hebei Steel can challenge Baosteel’s dominant position in the steel sector,” said Nie Xiuxin, a senior industry analyst with Ping An Securities.

As China’s barometer of the steel industry, Baosteel boasts not only of giant output, but also enjoys advantages in research and development, metallurgical technology, and production innovation. All these factors should also be taken into consideration when valuing a steel company’s industrial status, and as such Baosteel’s position is insurmountable in the short term, said Nie.

The overall steel turnover of China takes up nearly half of the global total. However, China’s say in the international steel industry is still very limited. “That is quite similar to the situation of Hebei Steel and Baosteel,” she added.

Wang Zhaohua, analyst, Guodu Securities, said Baosteel’s position is hard to replace. “At present, everyone in the steel industry follows Baosteel in terms of management, technical development and price adjustment,” he said.

According to Wang, around 30 to 40 percent of Hebei Steel’s products are low-end construction steels. In contrast, Baosteel concentrates more on high-end steel sheets, used in automobiles and electronic home appliances.

Baosteel targets to become the world’s second largest steel producer by 2012, with a projected annual production of 80 million tons.

It is announced Monday that Baoshan Iron & Steel Co., China’s largest steel maker, raised its August steels prices by 300-500 yuan/ton.

According to the report, Baosteel has adjusted up the ex-factory price of its hot-rolled steel products by 300-500 yuan/ton and that of cold-rolled steel products by 500 yuan/ton for next month.

After the price adjustment, Baosteel’s August price for SPHC 2.75-3.0 mm hot-rolled steel sets at 4,042 yuan/ton (pretax), and SPCC 1.0 mm cold-rolled steel price at 4,876 yuan/ton (pretax).

It is reported that the company’s August price policy will be executed from August 13.

It is reported that many Chinese listing metals firms have released their half-year performance guidance reports in succession since July, and almost all forecasted losses for the first half year but said the metals sector started to show signs of recovery in the second quarter.

Among the companies having issued their guidance, Yunnan Copper Co., Yunnan Aluminum Co., Yunnan Tin Co., Sino-platinum Metals Co. estimated losses of 120 million yuan, 110-120 million yuan, 40 million yuan, 3.3 million yuan, respectively, in the first half year, while Henan Zhongfu Industry Co. (600595.SH) predicted a year-on-year drop of 73.84 percent in its net profits.

According to their reports, the nonferrous metals sector’s losses were mainly due to the sharp fall of prices and demand of metallic products on the international market amid the financial crisis.

Despite the expected losses for the metals sector on the whole, quite a few companies had achieved profits in the second quarter, but their Q2 profits could not make up the losses in the first quarter.

Yunnan Copper Co. said that it made profits in the second quarter as prices of copper products were on the rise in that period. Yunnan Aluminum Co. also made breakeven in April-June period.

Yunnan Tin Co. noted that its selling prices and sales volume in the second quarter gained marginally from the first quarter and its performance was on the mend.

Thanks to the government’s supportive policy, aluminum demand from power grid construction, railway and transportation sectors has been increasing since February, according to Henan Zhongfu Industry Co., which performance picked up month on month in the first half year.

It is reported from China Metallurgical News that Qinghai Province, which located in Northwest China, plans to expand its local steel industry in 3 years.

In order to fulfill the targets during 2009 to 2011, the province projects to improve the production of iron ore fines by enhancing mine constructions

1. To specialize in specialty steel
2. To give temperate development of common steel
3. To gear up the building of 1 million tonnes per year stainless steel production base
4. To promote the regulations in steel industry development.

Among the five targets, Qinghai will give priorities:

A. To extent the fines capacity to over 3 million tonnes per year to ensure the need of local steel production

B. To the R&D of high value-added specialty steels like bearing steel, gear steel, tool & die steel and heat-resisting, cold-resisting, corrosion-resistant steels.

C. To the 1 million tonnes per year reduced iron project or the integration of 2 million tonnes per year steel project in Geermu, aiming to produce construction steels and other products like CR sheet, seamless pipes and cold forming section steels.

D. To the building of 1 million tonnes per year stainless steel and the development of local nickel mines and processing companies.

Besides, according to local and central policies local governments will strictly control the ferroalloy production capacity and speed up the elimination of 12500 KVA and below submerged arc furnaces to promote the industrial concentration.

In Europe and the United States, steel order books have improved over the past month, prompting producers to restart some idled capacity, but full recovery is some months away because real demand remains depressed.

Behind the uptick in orders is the fact that destocking in the United States has finished and in Europe is coming to an end, which analysts say is the reason for higher steel prices and resumption of output.

ArcelorMittal, the world’s largest steelmaker, last week said it was planning to restart some of its idled capacity in the United States and Brazil. US Steel Corp also signaled that it was about to bring back some capacity.

However, analysts and producers say the light at the end of the tunnel is still dim and although the worst seems to be over, the road to recovery is set to be rocky.

“Green shoots seems to be the phrase but it’s hard to believe that we’re really seeing a sustainable uptake in demand,” said John Lichtenstein, global leader of steel at consultancy firm Accenture.

“The risk is that increased production on the part of multiple producers will overwhelm the real demand increase, thereby putting renewed pressure on prices,” he said.

Germany’s top producer Thyssenkrupp said this week that it raised its prices from July 1 while industry sources said Europe’s second biggest steelmaker Corus was about to increase its prices too.

Global steel prices have tumbled more than 70 percent in some regions since hitting a peak in mid-2008, as a global economic downturn depressed demand in key consuming industries such as construction and automotives.

Currently domestic hot-rolled coil (HRC) prices in Europe are at about 375 euros per ton, with another 30 euros increase expected. It was 360 euros a month ago.

In long products, billet prices in the Black Sea region have risen to around $410-415 a ton, compared with around $350 a tonne about a month ago.

Slow, prolonged recoveryThe industry expects a slow, prolonged recovery, with production not reaching the levels seen in peak years, like 2007, before 2011 or even beyond.

“Based on what’s happened up to now, we should be at or near bottom, but we’re going to be there for awhile,” said Daniel DiMicco, CEO of US steelmaker Nucor Corp, adding that he believes the recovery will take at least 3 years.

In Europe, industry body Eurofer sees the market bottoming although it expects weak demand to keep consumption depressed and a bounce would only come by the last quarter.

As the industry struggles to regroup after one of its biggest shake-ups, one major problem looms – overcapacity.

Andre Gerdau Johannpeter, chief executive of Brazil’s largest steelmaker Gerdau, said that There was 1.7 billion tonnes of capacity out there and the production forecast was 1.1 billion tons.

It is reported from China News Agency that Asia’s biggest iron ore storage, with reserves of more than 3 billion metric tons, has been found in China’s northeastern province of Liaoning, citing the local government.

The Dataigou deposit, located near Benxi city, has both magnetite and hematite material with iron content of between 25 per cent and 62 per cent, the report said. Benxi government officials were not immediately available for comment.

The discovery may reduce China’s dependence on imports from Vale, Rio Tinto and BHP Billiton. China, the biggest buyer of iron ore, has rejected a 33 per cent price cut accord offered by Rio this year and called for prices to drop as much as 45 per cent because of losses by its steelmakers.

”This could be a low-cost operation for Chinese supply,” said Mark Pervan, a senior commodity strategist at ANZ in Melbourne. ”If they can reduce their reliance on high-cost iron ore imports and look for very low-cost domestic supply, that’s very positive for domestic steel mills.”

Angang Steel, China’s second-largest listed steelmaker, rose 4.9 per cent to 13.85 yuan in Shenzhen tradin. Baoshan Iron & Steel, the largest mill, rose 39 per cent to 7.20 yuan in Shanghai trading. Bengang Steel Plates Co. rose 7.7 per cent to HK$4.90 in Hong Kong trading.

Good for Angang

The find is ”very long term good news for Angang,” Cazenove Asia said in a note to clients. ”Its parent already has the largest iron ore reserves in China, and this potentially doubles it.” The mine could start in four years, the note said.

The reserves at Dataigou are equivalent to the combination of all the iron ore reserves in Liaoning’s Anshan and Benxi areas, the report said.

Angang board secretary Fu Jihui and Benxi Iron and Steel Group’s spokesman Liu Dahong said they didn’t have any information regarding the new deposit.

The cited iron content figures for the deposit suggest it’s ”a high grade discovery for China,” ANZ’s Pervan said. ”In global terms, that’s not very high grade. Brazilian ore has a grade of between 65 per cent and 70 per cent.”

Foreign imports

Mines in China typically have iron content of 20 per cent to 40 per cent, compared with over 60 per cent for production by Vale, Rio Tinto and BHP Billiton at their projects in Brazil and Australia. Rio and BHP each have about 5 billion tons of iron ore reserves at their mines, Pervan said.

China’s reliance on iron ore imports may rise to 70 per cent this year from about half in previous years, the Shanghai Securities News reported yesterday, citing Sinosteel, the nation’s biggest iron ore trader.

ANZ’s Pervan said that Chinese steelmakers have been ”using less domestic supply because the cost of domestic supply is rising quickly”. Imports have jumped because of the closure of high-cost domestic mines, Vale said in April. Mines that started after 2005 are mostly unprofitable, Zou Jian, former chairman of the China Metallurgical Mining Enterprise Association, said April 29. About one quarter to one third of mines in the country started before that period.

It is reported from CCTV today that Chinese steelmakers are unlikely to meet a June 30 deadline for concluding their price talks with suppliers on 2009 iron ore citing unidentified industry officials.

China “will stick to its principles and show patience in the negotiations,” an unidentified official of the China Iron & Steel Association said today on the CCTV telecast.

Chinese steel mills, which bought $60.5 billion of iron ore in 2008, want producers including Vale do Rio Doce, BHP Billiton Ltd. and Rio Tinto Group to cut this year’s contract prices by up to 50 percent to reflect falling steel demand as the economy slows.