There’s more division in China’s steel industry, ahead of the next round of negotiations to try and fix a benchmark price for iron ore.
The Chinese Iron and Steel Association (CISA) which represents the industry and which is trying to hold a unified line on the price negotiations, said a few days ago that the industry was importing far more iron ore than it needed.
Luo Bingsheng, CISA’s vice chairman, said China will buy 50 million tons more iron ore than it needs this year. He said the recent gains in price have been "speculative". The price of Australian iron ore has gone up 11pc in the past five weeks.
The steel mills, meanwhile, are showing no sign of letting up production or cutting back their iron ore purchases. There was a mere 1pc cut in output in September, and the mills dealt with falling domestic demand by shipping their steel overseas.
Exports doubled in the month, from 140,000 tons in August to 280,000 tons. For the second month in a row, the country was a net exporter, even though the biggest market for steel at the moment is undoubtedly China.
What’s more, there seems no sign of a near-term drop in production. Prices may be falling, and some mills are in the red, but there seems to be a showdown between the efficient mills, which can afford to keep going, and the old state-owned or formerly state-owned behemoths, which need to keep producing in order to provide jobs.
By the time the dust has settled, there may be plenty of mills out of business (which is a goal CISA is aiming for anyway), but who will be the victims? Will local governments prop up their champions and defy CISA, or will market economics decide?
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