On June 22, the giant Chinese state-owned raw materials processing company Sinosteel declared that, within the scope of the plan for restructuring and invigorating the Chinese steel industry, it has been actively exploring new patterns for importation of iron ore in accordance with the requirements of the China Iron and Steel Association (CISA) via promotion of the agent system of importation, thus providing services to medium and small-sized mills in conformity with official Chinese industrial policy.
In order to make profits, Chinese mills and traders have intentionally stockpiled iron ore and created a false boom in iron ore imports. This has driven up international freight costs, pushing up the spot ore market accordingly.
During the 2009 directors' meeting held by the CISA on February 19, CISA members approved an iron ore convention which requires a uniform annual price for iron ore imports. It also specifies that the iron ore import volume of one enterprise should not exceed its own consumption quantity, and that those which have no import qualification can buy from traders at a commission of less than three to five percent.
The subsequently-issued plan for restructuring and invigorating the Chinese steel industry has urged regulation of the domestic iron ore market and the prevention of speculation on iron ore prices. According to the plan, as the import agents for producers, traders are only allowed to charge a commission fee.
In order to boost the agent system for iron ore imports, Sinosteel has stressed that they intend to act as an import agent for producers, but with the final destination specified before signing of the import contract so as to ensure order in the market and to cut out speculation.
Sinosteel imported nearly 10 million mt of iron ore for domestic producers during the first five months of this year, almost four times of the volume in the same period last year, with a commission fee of around three percent or so.
The strong surge in Sinosteel's iron ore import volume this year has mainly been due to the price advantage of imported ore compared with domestic ore which has caused domestic medium and small-sized mills to turn to the imported ore market.