It is said from Roger Agnelli (Vale CEO) Wednesday that Brazil’s Vale, the world’s largest iron ore miner, isn’t in talks with Chinese steel mills on benchmark price of iron ore in 2009, but will continue to sell iron ore to China at prices concluded on interim contract.

Earlier, Rio Tinto reached an agreement with Japanese and Korean steel mills on a 33 percent price cut for iron ore and Vale also agreed on a 28 percent price cut for this year. Chinese steel enterprises rejected the above price cuts.

However, Vale is still respecting the interim price agreement it reached with Chinese steel mills, said Roger Agnelli.

Although steel prices in China dropped sharply in August, steel output is still on the rise. The domestic 77 main steel enterprises recorded an operating rate of 90.9 percent this month, compared with 87 percent in July.

According to the latest data from the China Iron and Steel Association, the country’s mid- and large-sized steel companies produced about 1.67 million tons of crude steel per day in the first ten days of August, refreshing the record again.

An analyst with Umetal noted that prices of imported iron ore reached the peak in early August, followed by a 15 percent fall responding to the drop of steel prices.

China’s major steel plants have recently raised their ex-factory prices for September, which foretells that they are still optimistic about the steel market in the following two months.

Market analysts note that China’s iron ore demand will continue rising along with the growing steel output.

It is reported that China’s largest steelmaker – Baosteel Group Corp., agreed to buy a 15 percent stake in Australian iron ore and coal company Aquila Resources Ltd. for A$286 million ($240 million) to secure supplies.

Baosteel will buy 43.95 million new Aquila shares at A$6.50 apiece, the Perth-based company said today in a statement to the Australian stock exchange. That’s 0.8 percent less than Aquila’s last traded price of A$6.55 on Aug. 25.

China, the world’s biggest buyer of iron ore, has invested in $56 billion of projects globally to try to reduce dependence on Vale SA, Rio Tinto Group and BHP Billiton Ltd., the world’s three biggest suppliers that control two-thirds of seaborne supply. Aquila has announced plans to develop a A$4.1 billion iron ore mine, port and rail project in Western Australia.

“This placement will provide the company with significantly greater capacity to accelerate the development of its key, high quality, steel raw materials asset portfolio,” Aquila said in the statement. Baosteel will also assist Aquila in sourcing “low-cost” financing for a number of the company’s projects including the West Pilbara project, the company said.

Aquila shares have jumped 98 percent this year amid a rebound in demand and prices of the steelmaking raw material. The company has a market value of A$1.6 billion.

The agreement was earlier reported by the Australian Financial Review. It is also said from Aquila that Baosteel also nominated Vice President Dai Zhihao to the board.

According to figures from the country’s industry information provider, CHINA’S steel prices went through a roller-coaster ride of gains and declines within 20 days, with the biggest tumble at 20 percent.

Steel prices plunged from this year’s record high early this month, a culmination of price increases since late last month when big steel plants raised prices.

Prices of deformed steel bars fell from their highest level of 5,000 yuan (US$735) per ton to 4,200 yuan, a decline of 16 percent, and steel wires saw the biggest tumble of 20 percent from 4,850 yuan per ton to 3,900 yuan as of last Wednesday, according to MySteel.com, the industry information provider.

Xu Xiangchun, an analyst at Mysteel, said the price hike by major steel plants was the last straw weighing down on the steel market and triggering the price slump.

Traders who sold stockpiles to cash in on earlier price rises also helped drive the prices lower, Yao Hongchao, president of a Henan steel trader, told the China Securities Journal.

Other traders suffered huge losses as prices slumped, while steel producers had significantly reduced stockpiles when prices were high, said Zhang Ping, an analyst with Umetal, another industry information provider.

The price change was a technical adjustment at first, but it could be compounded by a change in macro policies, such as a slight adjustment in bank credit, and a bearish run of the stock market that may impact investor confidence. The steel price adjustment may continue for some time, said Zhang, as stockpiles continued to rise on lower trade and supply.

Xu said there were signs that steel prices had plunged too much and that they may still drop.

Zhang forecast prices of deformed steel bars could stabilize at 3,700 yuan per ton before falling.

It is reported on Thursday that global crude steel production reached 103.9 million metric tons in July, the highest monthly level of 2009 but still 11.1 percent lower than a year earlier.

The report of the World Steel Association revealed that the world and China’s crude steel production has been rising steadily since April.

Crude steel production in China, the world’s largest metal producer and consumer, was up 12.6 percent year-on-year to 50.7 million tons in July, almost half of the world crude steel production, the report said.

This was the first time that China produced more than 50 million tons in a single month, according to the report.

Meanwhile, U.S. production was 41.6 percent lower than in July 2008, and EU production was 35.6 percent lower than a year earlier.

It is also reported that total crude steel production in 66 of the world’s main countries was 653 million tons for the first seven months of 2009, a 19.9 percent fall compared with the same period last year.

It is quoted from Shan Shanghua, secretary-general of the China Iron & Steel Association Friday that steel prices in China started to plunge last week after rising for 17 straight weeks and such price fall was totally attributed to overcapacity.

Steel prices will go downward in the second half of this year if capacities continue to expand, added Shan.

By August 19, prices of the domestic mainstream steel products had slumped 550-950 yuan/ton or about 20 percent since last week.

However, some market analysts hold that in the usually slack season for steel industry in July and August, the price fall was just a normal adjustment from a sharp rise in the earlier period.

Steel prices are expected to halt dropping in September and steel enterprises’ performance in the second half may be better than that in the first half thanks to rising demand from the real estate sector, they point out.

During the period from April to early August, prices of main steel products in China soared nearly 30 percent over this year’s valley. An analyst with CBI China said that the government’s four-trillion-yuan stimulus package, which was launched in the fourth quarter of last year, began to boost steel demand from the second quarter this year. Therefore, steel enterprises’ stocks kept falling in the March-May period and steel prices started rising from mid-April.

“In the June-July period, the domestic steel output grew too fast, far surpassing the market demand,” Shan noted. Meanwhile, lots of intermediary traders largely added stocks on speculation that the price would rise higher.
“Now traders begin to sell out their stocks, but market doesn’t have so much demand”, Shan added.

Statistics from CISA show that stocks of steel products posted a month-on-month rise in July after decline for four consecutive months.

Currently, some steel products’ ex-factory prices are higher than spot prices, with the price gap as wide as 1,700 yuan/ton. A researcher with China’s leading steel producer Baosteel said that the steel demand from downstream industries are inadequate to support the high price, which will force steel enterprises to cut their prices.

Shan still held unoptimistic outlook for the domestic steel market in the following period, saying that steel prices can hardly go up in the second half if capacities maintain at such a high level.

With price rise of raw materials such as iron ore and coke, the steel production cost is also increasing to squeeze steel enterprises’ profits, Shan said, adding that large steel plants’ steel businesses still incurred losses in the first seven months and most of their profits came from investment return.

However, according to Ding, steel prices had surged for more than three months, so it’s normal for them to slip back. The steel industry will enter the traditional peak season in the September-October period and steel prices have a 20-30 percent rising room, he said.

The CBI analyst predicted that steel enterprises’ profits will climb in the second half as steel exports are likely to warm up.

A CBI survey showed that orders for steel products from overseas have increased prominently from June, with the quoted price also on a rise.

It is reported that Shougang Group, one of China’s major steel makers, acquires 90 percent equities of Shanxi Changzhi Iron & Steel Co., Ltd. (Changgang) for 500 million yuan, after getting an official reorganization agreement with each other.

Changgang now has an annual iron and steel production capacity of 3.6 million tons.

After the reorganization, the new company named Shougang Changzhi Iron and Steel (Group) Co., Ltd. will still be stated-owned one, with the remaining 10 percent equities owned by Changzhi City State-owned Assets Management Corporation.

Shougang has promised to invest more than 19 billion yuan in three years to optimize the product mix of the new company and expand its annual output to six million tons.

Since it removed from China’s capital city Beijing to the neighboring province (Hebei Province), Shougang has completed the building of an annual production capacity of 10 million tons in Caofeidian, Hebei.

According to a statement of China’s Supreme People’s Procuratorate late Tuesday, Prosecutors have approved the arrest of four employees of the Anglo-Australian mining giant Rio Tinto Ltd. on charges of trade secrets infringement and bribery.

Preliminary investigations have showed that the four employees, Stern Hu, Liu Caikui, Ge Minqiang and Wang Yong, had obtained commercial secrets of China’s steel and iron industry through improper means, which had violated the country’s Criminal Law, according to the statement.

Prosecution authorities also found evidence to prove that they were involved in commercial bribery.

Investigations have also revealed that there were suspects in China’s steel and iron enterprises who were providing commercial secrets for them.

The four were detained in Shanghai in early July on charges of stealing China’s state secrets.

Stern Hu, an Australian citizen of Chinese origin, was  general manager of the company’s Shanghai office and  was in charge of the iron ore business in China.

Hu was a long-standing employee of Rio Tinto and had lived in Shanghai for a number of years with his wife, who is also an Australian citizen.

It is said that the other three, who also worked in the Shanghai office, are Chinese employees of the company.

It is reported from China Daily on Wednesday that China’s imports of iron ore and crude oil hit record highs in July due to strong domestic demand.

The newspaper said despite that overall trade showed a steeper decline over the same period last year, imports are likely to grow and commodity prices expected to rise further. The country’s growing appetite for overseas goods will considerably benefit resource-rich regions such as Latin America, Africa and Australia.

Oil imports climbed by 18 percent to 19.6 million tonnes from a month ago, and iron ore also rose by 5 percent to 58.1 million tonnes. China spent a combined 13.8 billion U.S. dollars on the two commodities, 15 percent of the total imports.

It is said from the newspaper that China’s 4-trillion-yuan stimulus package has led to growing consumption of oil and iron at higher prices.