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China steel group urges iron ore import

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SHANGHAI - China's Iron and Steel Association has urged its members to control iron ore imports as port stocks have surged to a record high, undermining Chinese steel mills' position in price talks with Australian miners.

Steel mills should control the pace and volume of iron ore imports, while the mills should store iron ore at ports to meet 45 days of usage, the association, which represents major Chinese steelmakers, said in a statement posted on its website.

Importers who bring in large volumes of ore in order to speculate on the market for higher sales prices could lose their iron ore import licences, it said in the statement.

Chinese steel mills, the world's largest, are still locked in the 2008 price talks with Australian miners Rio Tinto Ltd/Plc and BHP Billiton Ltd/Plc While Brazilian miner Vale, the world's top iron ore producer, has already agreed on a price hike of 65-71 percent, talks with Australian miners are deadlocked.

Imported iron ore stockpiles at Chinese ports reached a record 79.22 million tonnes as of May 15, and the figures are likely to increase further, the country's top planning body, the National Development and Reform Commission, said on Tuesday.

China imported 153.49 million tonnes of iron ore in the first four months, up 15.2 percent from a year earlier and far exceeding an 8.3 percent increase in pig iron output, the association said. Iron ore is fed into blast furnaces and processed into pig iron.

"The overflows of the iron ore imports in the first four months gave a false impression of a jump in Chinese iron ore demand," the association said.

The National Development and Reform Commission has said the massive inflows of iron ore had caused overstocking and severe congestion in ports in northern China, including Qingdao, Rizhao, Tianjin and Lianyungang.

Lowering iron ore port stocks may help reduce domestic prices for iron ore and strengthen the country's bargaining position in talks over 2008 term prices with Australian miners.

The Australian miners have demanded freight premiums to make up for the difference in transport costs, which at present stand at as much as $60 a tonne.

Severe port congestion in China, due to the large port iron ore stocks, has also helped push up freight rates for dry bulk cargoes to new records. The benchmark Baltic Dry Index hit a fresh high of 11,793 overnight.