The agreement reached by China's main steel maker Baosteel and Australian mining giant BHP Billiton on iron ore prices is of great importance, showing steel makers can have a say in the price-setting mechanism despite their current disadvantaged position in the market.

Under the deal, which ended a prolonged dilemma between the Chinese steel maker and BHP, the world's major iron ore provider, the latter agreed to give up its earlier demand for a freight premium of 7.5 to 10 US dollars on iron ore sold to China on top of the 71.5 percent price rise reportedly accepted by China in February.

BHP also agreed on Wednesday to accept the same price increase level as other iron ore providers, such as Rio Tinto and Brazil's CVRD.

The remarkable outcome was achieved in a last-ditch effort by Baosteel and BHP to resolve their dispute, which started on April 7, after at least eight rounds of arduous negotiations between the two sides.

Analyst Liu Changsheng said, "Baosteel did a good job."

"It not only kept its bottom line not to agree to further price hikes of iron ore in the negotiations, but also made a breakthrough in exploring how to further improve the price-setting mechanism in the future and put itself in a favorable position in future negotiations," he acknowledged.

Baosteel has set an example for global iron ore consumers to play a new role in the market, as it successfully combined its hard insistence on the bottom line with its flexibility in the negotiations, some industry insiders here said.

However, others questioned how the Chinese steel mill will shoulder its responsibility in future negotiations, how it will cope with future price increase demands, and how it will coordinate with other world steel manufacturers.

Insiders forecast that Baosteel may step up its efforts to coordinate between steel producers and iron ore providers to further perfect the price-setting mechanism and establish strategic cooperative ties between the two sides.

Iron ore has been a crucial part of Sino-Australian trade. Australia is the largest exporter of iron ore to China.

BHP has exported around 30 million tons of iron ore annually to China, according to Qi Xiangdong, vice president of the China Iron Steel Association.

"This amount was not enough to oblige Chinese steel mills to accept unreasonable demands," Qi said, quoting by Shanghai Securities News.

"The iron ore stockpiled at Chinese ports currently stands at 34 million tons," the official said, adding that in the first two months of this year, China's iron ore output increased to 7 million tons, and the increased output will reach 40 to 50 million tons this year.

China will produce 300 million tons of steel this year, he added. The iron ore produced by Chinese businesses plus the 240 million tons imported are enough to meet the demand of Chinese steel manufacturers.

He held that the current iron ore price is "unreasonable" and predicted that the price will drop by 10 to 15 percent next year.

China's 16 major steel mills, at a meeting sponsored by the China Iron Steel Association on April 11, reached a common stance insisting that they would rather cut their production than to accept the "unreasonable" price hike demand of the overseas iron ore suppliers.

The meeting was aimed at coordinating China's iron ore import policies in the face of the global price hike this year, which will impact negatively on the country's economic growth in the long run, experts warned.

Source: Xinhua