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: Chinese steel companies held in iron grip of ore giants - News|Nanjing Rayee International Co., Ltd.  •  С: 21453

Chinese steel companies held in iron grip of ore giants

China’s iron and steel companies are under the control of iron ore companies, said Zhang Xiangqing, board chairman of the Rockcheck Steel Group.

The quarterly price of iron ore has decreased in the fourth quarter of 2010, but it most likely will rise again in the first quarter of 2011.

According to statistics from mysteel.com, spot iron ore prices, the free-on-board price of nearly 64 percent of iron ore is 147 U.S. dollars per ton on average from September to present, 20 dollars higher than the free-on-board price of iron ore determined in the fourth quarter of 2010, and it is an important reference standard for determining the new quarterly price of iron ore.

“Iron ore companies are raising the price of iron ore by controlling the shipments and raising the ocean transportation expenses. It is one of the reasons for the rising trend of iron ore prices,” said Xu Guangjian, an analyst from the ore channel of the Umetal.com.

Zhang is deeply worried about the future of his company. On one hand, there is an overall surplus of steel products in China’s steel industry. On the other hand, the rising prices of iron ore, coke and other raw materials have placed steel makers under enormous cost pressure.

“Steelmakers’ profits have been falling steadily since April, when steel prices began declining,” said Luo Bingsheng, executive vice president of the China Iron and Steel Association.

The return on sales of China’s large and medium-sized steel manufacturers for the first 10 months of 2010 averaged 2.8 percent, and the actual average return would be 2.58 percent if the investment income was deducted. The steel industry’s profitability is lower than the average profitability of Chinese industries.

“The profitability of large and medium-sized steel manufacturers from November 2010 to early 2011 will remain largely the same as in September and October this year,” Luo said.

Xu Xiangchun, chief information officer of mysteel.com, a market research and analysis firm, said frankly that judging from the current situation, the fourth quarter of this year and the first quarter of next year will be a slack period for steel products, leaving extremely limited room for steel price increases.

If the iron ore prices rise more than expected in the first quarter of 2011, Chinese steelmakers will face considerable survival pressure and even have to operate at a loss.

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