Deng Qilin, chairman of the China Iron and Steel Association (CISA) and general manager of Hubei-based steelmaker WISCO, has said that the Chinese steelmakers would be placed in a very difficult situation if unreasonable iron ore prices were to be accepted.
According to the CISA chairman, as the biggest buyer of iron ore China has enabled the iron ore producers to make great profits; however, the Chinese steel mills are in a struggle to survive due to the rising iron ore prices. As per CISA data, in 2009 China's 68 large- and medium-sized steel mills posted a profit of RMB 55.388 billion ($8.11 billion), down 31.43 percent year on year. Meanwhile, their profit margin has been declining each year, from 7.5 percent in 2007 to five percent in 2008 and to only 2.8 percent in 2009.
By contrast, as CISA chairman Deng pointed out, the big three iron ore producers have been making great profits in recent years. In 2009, Rio Tinto posted a net profit of $4.78 billion, up 33 percent year on year; BHP Billiton's net profit in the second half of 2009 increased by 134 percent year on year to $6.1 billion; finally, Brazilian miner Vale registered a profit of $1.57 billion in the fourth quarter of 2009, increasing by 15 percent year on year.
In the meantime, various Chinese steelmakers have expressed strong opposition to the 80-90 percent price increase sought by the three iron ore giants and have called on the iron ore producers to adopt a longer-sighted approach.