2011-03-17 17:31

The Ministry of Industry and Information Technology (MIIT) is researching how to combine business and finance in order to change China's inferior position in the iron ore market. Zhou Zixue, chief economist of the MIIT, announced the ministry's plan at forum held in Beijing, the 21st Century Business Herald reported Thursday.

Zhou said if the financial and industrial circles deal with their own problems on their own, China's iron and steel industries could never gain the right to speak in the market of raw materials.

After China's steel lobby, the China Iron and Steel Association (CISA) announced the suspension of iron ore talks. China's steel enterprises sped up integration, the report said.

Integration

After East China's Shandong province began a round of integration among its steel companies, North China's Shanxi also announced its plans to condense its steel enterprises into two big ones, according to the report.

This round of integration launched around the two political sessions was spurred by the need for the industry to survive as well as an attempt to gain support from China's high-level decision makers, the report said.

On the one hand, government policies urged the enterprises to save energy and cut emissions. On the other hand, as the iron ore talks encounter more obstacles, China's steel mills may become more passive when acquiring resources if they do not increase their capacity through integration.

In 2005, the National Development and Reform Commission (NDRC) said it expected the top ten steel mills to contribute 50 percent of the country's total steel production by 2010. As of 2020, the proportion should be more than 70 percent. But according to the latest data, the ten biggest steel enterprises contribute about 40 percent of the market share.

Hebei Iron & Steel Group has 230 billion yuan in bank credit, and it acquired 3.5 billion tons of iron ore resources through integration. However, not every company is as lucky and successful as Heibei Iron & Steel Group.

Zhou said China's steel industry still has lots of difficulties and problems. It relies on steel mills, especially leading enterprises, to solve its problems, the newspaper reported.

Finance and industry

Zhou stressed that thorough research on how to be more influential in iron ore talks and how to promote the growing finances of the market are needed to improve the competitiveness of China's steel mills.

For a long time, China has been in a disadvantageous position in price negotiations for iron ore. And the price manipulation worsened as the three giants – Rio Tinto, BHP Billiton and Vale – adopted a quarterly pricing system in April 2010.

On Jan 29, India announced the launch of the world's first iron ore futures contract. That made iron ore a strong financial tool, which could help realize the market's full financial potential.

Zhou said if financial and industrial circles make the mistake of trying to handle problems individually, China's iron and steel industries may never have a voice in discussions about the iron ore market.

He urged China's industrial and financial circles to work together to make the iron ore market profitable. MIIT has started its research into these areas, he added.