BEIJING, Mar. 9 -- This year's iron ore benchmark talks will not end in agreement any time soon because Chinese steel mills will not accept a price that is higher than what the processed products can be sold for, Deng Qilin, the president of Wuhan Iron & Steel Group, said yesterday.
Deng, who is also the chairman of the China Iron & Steel Association (CISA), said: "Although the prices of steel products have picked up this year, they still cannot digest the pressure from rising iron ore prices.
"Chinese steel mills are suffering from slender profits while iron ore miners only have to dig about a meter underground. What costs them $10 they sell for $100. Is it fair?"
Official data shows that the average profit ratio of 72 large Chinese steel mills declined to 2.2 percent in 2009, down 53.4 percent from the previous year.
He said Chinese steel mills will either slash output and suffer losses or raise their prices to transfer their high material costs, but that could seriously affect downstream industries such as the auto and home appliance industries and damage the country's economic recovery.
Deng urged the government to regulate the iron ore market and centralize iron ore imports.
CISA has long wanted to reduce the number of licensed importers and use a system that erases the differences between long term and spot prices.
He also said Chinese steel mills need to accelerate the pace of consolidation and overseas resources acquisitions to reverse the passive position in iron ore talks.