Wednesday, 22 July 2009

Quiet diplomacy gets its chance

The quietly diplomatic method of dealing with the Chinese Government about the accusations that Rio Tinto is a briber and corrupter persists because press and politicians alike can find out nothing new to talk and write about. Not that this should be taken as indicating that the Chinese Government is any less concerned about goings on in its iron and steel industry. The People’s Daily, the official mouthpiece of the Communist Party, this week wrote of several Chinese government departments, including the Ministry of Commerce and General Customs, launching investigations into the flow of imported iron ore on the market. The People’s Daily said:

Industrial insiders have been urging the government to take strong action to rectify the iron ore market after the Rio Tinto “spy” case was exposed.

China’s steel prices have been at low levels since they plunged in the fourth quarter of last year. Profits of iron and steel companies are under great pressure because of shrinking profits.

It is important for those companies to bring their costs down. However, Chinese steel makers are in a disadvantaged position in their negotiations with their iron ore suppliers, including Rio Tinto.

Speculation on iron ore imports leading to surging imports are blamed as the major reason for China’s weak position in those negotiations.

China’s monthly iron ore output jumped nearly 27 percent in June to 83.3 million tons, as demand for steel increased and prices rose.

There are 112 companies in China which hold import qualifications of iron ore, with 70 of them steel makers and 42 traders.

China’s steel industry will face bleak prospects of making profits this year following a 97.5 percent profit slump over the first four months of the year due to the industry’s overcapacity.

China’s crude steel production increased by nearly 1.2 per cent to 266.6 million tons in the first half of 2009 and reached 45.39 million tons in June.

If that continues, the annual production is expected to reach 552.2 million tons in 2009, up 10 per cent from 2008.

However, exports were significantly down. Export of steel billets, for example, shrank 97.6 per cent from January to April this year.

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