It is said from industry insiders that iron ore spot prices reached a record high this week, triggered by moves from global mining firms to enhance their position in ongoing negotiations.

“The fact that traders are stockpiling steel on the prediction that steel prices will rise next year caused the market to soar,” said a sales manager at Beijing Ye-Steel Trading Co.

China’s steel stocks hit 12.18 million tons last week, up 109 percent from the same period last year and up 2.88 percent compared to last month, according to Mysteel.com.

“Even in the slack winter season, steel traders are storing stocks because they foresee an improving market next year,” the sales manager said.

China’s largest steel mill Baosteel and Anshan Steel announced plans to raise delivery prices of steel products for next month by 100 yuan to 600 yuan per ton.

Analysts said the price hike could put domestic steelmakers in a disadvantaged position in iron ore talks as raising steel prices provides more room for miners to hike prices.

The rising spot price of iron ore also put pressure on the benchmark price for the material.

The spot price for ore with a 63 percent iron content soared to $115 per ton including freight yesterday, up by $10 per ton over three weeks ago and more than 50 percent higher than the benchmark for fiscal 2009 reached by Rio Tinto, BHP Billiton, and Vale with Asia steelmakers.

Traditionally, annual contracts are settled below spot market prices. Last year’s benchmark contract for iron ore was $60.4 a ton, excluding freight charges.

Investment banks this week have altered their forecasts for 2010-11 contracts, saying annual iron ore prices could rise by up to 30 percent, up from an expected a 10 percent increase.

The annual negotiation between miners and Chinese steelmakers are likely to start in late December. Both parties aim to finish the talks before April 1.

This year’s iron ore price talks have been deadlocked since June when China’s chief negotiator, China Iron and Steel Association insisted on a 45 percent discount over the last year’s prices, after a 33 percent cut in benchmark prices had been reached by the three global miners with Japanese and South Korean steel mills.

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.

It is reported from a domestic newspaper on Friday that the CISA (China Iron and Steel Association) is looking to sign long-term iron ore deals with suppliers outside Australia and Brazil as talks with major miners stay deadlocked.

CISA, China’s chief negotiator in the protracted price talks with Australia’s Rio Tinto and BHP Billiton and Vale of Brazil, is pushing for long-term agreements with miners in India, South Africa and Vietnam, the 21st Century Business Herald said, citing unidentified sources.

More than a month after the traditional June 30 deadline, no breakthrough in the benchmark price talks is yet evident, but smaller Australian miners have already pointed the way forward by striking more flexible agreements with their Chinese customers.

Atlas Mining Ltd said this week it had agreed prices that are based on a negotiated benchmark but can be adjusted should the spot market price rise above or below a certain level.

China, whose steel mills are struggling with overcapacity, has been holding out for a price cut of 40-45 percent, even though Japanese and Korean steelmakers have signed off on a 33 percent reduction.

It is said from CISA last week that it would continue to hold out for a “reasonable” price cut.

It is reported that China (its major ports), the world’s biggest iron ore buyer unloaded 35 percent more of the steelmaking ingredient last month from a year ago.

Ships unloaded 56.5 million metric tons of iron ore in July at major ports, the Ministry of Transport said on its Web site. The ministry didn’t provide comparative figures.

Crude steel output in China jumped to a record in the first half and cash iron ore prices have gained 33 percent this year as a $585 billion stimulus by the government improves building demand and auto purchases. The China Iron & Steel Association has blamed traders for the rising imports, which have hurt its ability to negotiate for lower contract prices.

“The increase in iron ore imports in July was partly boosted by small steelmakers buying ore at lower spot prices,” said Roslyn Ji, an analyst at Core Pacific-Yamaichi International Holding in Beijing.

Spot iron ore prices traded at $95.30 a ton yesterday according to the Steel Index. They averaged $83.436 a ton in July. Chinese steelmakers are stalled in talks to agree on benchmark contract prices with suppliers Rio Tinto Group, BHP Billiton Ltd. and Vale SA. The mills buy ore from mines in Australia, Brazil and India.

Record ImportsIron ore imports hit a record 57 million tons in April, according to general customs. Imports by traders accounted for 44 percent of purchases in the first half, the steel association said last week, compared with 30 percent a year earlier.

“In the second half, China may cut its reliance on imports because higher prices may prompt mills to use domestic ore,” said Umetal Research Institute analyst Du Wei.

Container volumes handled by major Chinese ports fell 3.8 percent to 10.1 million 20-foot standard containers, the transport ministry also said today. That’s the lowest level of decline this year.

“China container traffic, relying mostly on exports to the U.S. and Europe, still needs time for a full recovery,” said Core Pacific-Yamaichi’s Ji.

Former Federal Reserve Chairman Alan Greenspan said Aug. 2 that U.S. economic growth may resume at a rate faster than most economists forecast.

It is also said from the ministry that total cargo volumes at the ports rose 13 percent to 500 million metric tons in July from a year ago.

According to Luo Bingsheng, executive vice president of the association, China Iron and Steel Association (CISA) will push forward the iron ore import registration system, as an effort to curb the flow of imported iron ores to high polluting enterprises with backward production capacity.

The association’s latest data show that China imported 297 million tons of iron ores during the first half of 2009, up 29.3 percent from a year earlier. Those imported by trading companies reached 131 million tons, accounting for 43.96 percent of the total iron ore imports, higher than 29.83 percent during the first half of 2008.

China has 112 companies qualified for importing iron ores, but actually 152 companies were engaged in such business, according to the association.

According to statistics released by the National Bureau of Statistics, iron ores used in pig iron production increased 21.55 million tons during the year’s first half, while iron ore imports rose by 67.33 million tons. Obviously, the imports were highly above production demand, which led to large iron ore inventory in ports and high demurrage charges and ocean freight.

The large iron ore imports by trading companies has resulted in over imports and distorted the relationship between domestic iron ore supply and demand, and it was disturbing for the on-going iron ore price negotiation.

Luo said that China would strictly implement the iron ore import agency system. At the same time, it would adopt a uniform price in accordance with the negotiation results, to avoid the risk of speculation on different prices for one product.

Luo called on the government to encourage domestic iron ore exploitation, to ensure supply to the domestic market.

As for the highly concerned iron ore price negotiation, Luo said that it was still in progress.

Companhia Vale do Rio Doce, Brazil’s leading metals and mining company, said last Friday that it would not reach any price agreement with China before completion of price negotiation between China and Australia’s BHP Billiton Ltd. and Rio Tinto.

It is announced from BHP Billiton last week that it has reached an annual contract price with clients on 23 percent of its iron ores and a mixed contract price on 30 percent of its iron ores, leaving the rest 47 percent still under price negotiation.

It is determined that CHINA wants all of the country’s steel makers to accept a single ore import price once the price for this year.

The measure aims to regulate excess iron ore imports by small steel makers and intermediary traders, which have hampered ore negotiations by creating unnecessary demand.

The China Iron and Steel Association has proposed an import system to force traders and mills to buy ore at a unified benchmark price agreed with foreign miners, and traders could charge a 3-to-5-percent fee for resale, Luo Bingsheng, vice chairman of the CISA, said yesterday.

The steel industry group said foreign miners are encouraging spot sales to China, leading to excess imports and distorting China’s actual demand. Spot imports account for 83 percent of China’s ore purchase so far this year, it said. The country’s iron ore imports surged 29 percent in the first half, mainly driven by speculative buying from smaller mills and trading companies in recent months.

China’s negotiation position has been hurt by rising spot ore prices, which were below contract prices in May when Japan first accepted the 33-percent cut but have now exceeded them.

The CISA also expects a “reasonable” solution in the protracted iron ore price negotiations with global miners while it blamed speculative trading for hindering the talks.

“We hope to see a reasonable result,” Luo said at a press briefing yesterday in Beijing, adding China is seeking a win-win agreement.

The CISA, China’s lead negotiator this year, is locked in the talks as it demands a deeper cut in term prices after major Japanese and South Korean steel mills accepted a 33-percent reduction offered by Australia’s Rio Tinto, the world’s second-largest iron ore miner.

The talks, originally meant to set prices for the year starting April, had missed a key June 30 deadline, with some Chinese mills already agreeing to a temporary 33-percent cut.

BHP Billiton, the world’s No. 3 ore producer, this week said it has agreed to sell 30 percent of its volume for this year on a combination of quarterly negotiated pricing, spot market and index-based pricing, but only settled 23 percent of volume at annual contract prices.

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 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.