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Chinese Steelmakers Should Boost Overseas Investment, CISA Says

Feb. 24 (Bloomberg) -- Chinese steelmakers should boost overseas iron ore mine investment to secure supplies, the China Iron and Steel Association said today in a statement at a press conference in Beijing,

The global supply of iron ore will remain tight in the first half of 2011, Luo Bingsheng, former vice chairman and current special adviser to the steel association, said at the conference.

China and India will lead mergers and acquisitions in metals and mining in 2011 after global deals rose 89 percent last year as rivalry for commodities among the fastest growing economies spurs prices, Michael Lynch-Bell, head of mining and metals at Ernst & Young, said in an interview in London yesterday.

The cash price of 62-percent iron ore arriving at Tianjin port rose to $191.9 a metric ton Feb. 16, the highest level since the data became available in November 2008, according to the Steel Index.

Rio Tinto Group, BHP Billiton Ltd. and Vale SA, which control three-quarters of the world’s iron ore supply, abandoned annual pricing last year in favor of quarterly agreements as spot prices rose. BHP is also seeking monthly pricing, and the price negotiations between miners and Chinese steelmakers are “dead” for one year, Luo said.

Stockpiling

China should study building stockpiles of commodities, including iron ore, Luo said. “China should use its foreign-exchange reserves to build strategic stockpiles of iron ore.” He said China should buy when prices “are relatively cheap,” without saying when that will happen.

China, the world’s biggest steel producer, plans to “control” steel production over the next five years as prices start to drop after earlier gains prompted steelmakers to increase output, the association said in the statement.

Domestic steel prices have fallen 2.2 percent to 4,853 yuan ($738) a ton yesterday after reaching 4,961 yuan on Feb. 15, the highest since Sept. 2008. Private mills have been running at full capacity on earlier price gains, leading to higher inventories.

China should push forward the plan to move steel plants to the coast and control the total steel production, the association also said, without elaborating.

To contact Bloomberg News staff for this story: Xiao Yu in Beijing at yxiao@bloomberg.net; Helen Yuan in Shanghai at hyuan@bloomberg.net

To contact the editor responsible for this story: Andrew Hobbs at ahobbs4@bloomberg.net

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