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China’s Steel Enterprises Stop Importing Iron Ore Against Ocean Freight Rises

June 19, 2008

BEIJING, June 19 /Xinhua-PRNewswire/ — Ocean freight rises is one of the most important reasons for the substantial increase of China’s import costs of iron ore ( http://www.tootoo.com/ ). In recent days, Tootoo.com obtained the information from Shanghai Shipping Exchange as follows: in the Pacific and Atlantic regions, some speculative lessors manipulate long-term chartering markets and increase the Cape of Good Hope-model vessel freight prices sharply, which directly causes the sustained rise of the ocean freight.

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Confronting with the persistent pressure from the rising ocean freight, China’s iron and steel producers ( http://www.tootoo.com/w-Minerals_Metals_Materials/ ) finally determined to fight initiatively through stopping imports of iron ore from overseas at present. The statistics of the steel industry from Tootoo.com ( http://news.tootoo.com/Minerals/ ) indicates that global growth of iron ore mainly comes from China in recent years and China’s ocean-shipping growth of iron ore accounts for 80% globally. In 2008, the global marine volume of iron ore is expected to reach 830 million tons, of which China’s imports of iron ore will take up 50%. As early as 2003, China has become the world’s largest import country of iron ore, but it has not initiative power to fix a price of ocean freight.

Last week, as buyers suddenly departed, the marine market prices of iron ore presented a slump trend. Statistically, sea freight from Brazil to China and from Australia to China sharply dropped 14.89% and 31.53% respectively. The Baltic Sea Cape of Good Hope-model vessel freight price index (BCI) also fell 22.90%.

However, the fall of sea freight is only short-term, based on the current situation of ocean transportation. Although after the sharp slump the expected ocean freight rebound won’t be quite quick to return to a high position, judging from the long-term trends, it remains likely to rise high.

Some market researchers from Tootoo.com analyzed that a series of macro- control measures by the Chinese government not only changed the people’s points of view about the import market of iron ore but also indicated the government started to intervene in the Sino-Australian negotiation of iron ore prices ( http://news.tootoo.com/Minerals/Iron___Steel/ ). Whereas, in the end, Australian iron ore producers refused the ocean freight compensation, the possibility of accepting 65% price rise scope increased.

Generally speaking, if the problem of too-high ocean freight of iron ore cannot be solved effectively, the current low profit of China’s iron and steel enterprises ( http://www.tootoo.com/buy-metal_steel/ ) will be segmented by international iron ore and marine transportation giants together. Now, since ocean freight is already at a too-high level, the CIF price of China’s imports of iron ore nearly exceeds Chinese domestic prices of steel commodities. To some extent, sea freight of iron ore has a deep relation with the development and survival of China’s iron and steel enterprises.

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