China mills demand 2007 iron ore prices-Shougang

By Eadie Chen

BEIJING, March 11 (Reuters) - Shougang Iron & Steel (000959.SZ), China's sixth-largest steel maker, said on Wednesday Chinese steel mills would only accept global iron ore prices close to the 2007 level, which would give both miners and steel firms reasonable profit margins.

Chinese steel mills and big global miners are in annual talks to set term iron ore prices. Chinese steelmakers say the miners are dragging their feet, hoping for demand to recover.

"I think, first of all, we can only go to discuss precise prices on the basis of the 2007 price level," Shougang Group Chairman Zhu Jimin told reporters.

That implies a 50 percent cut, since last year prices from top ore suppliers BHP Billiton (BHP.AX) (BLT.L), Rio Tinto (RIO.AX) (RIO.L) and Vale (VALE5.SA)RIO.N almost doubled.

"The price should give miners some profit room for their sustainable development, and it should also be in a range the steel mills can bear. A price that hurts the interest of one side will lead to disorder in the industry," he added.

China's steel sector, the world's biggest, has been hit hard by the global slowdown because demand for ships, cars and building work has fallen sharply.

Beijing is encouraging the fragmented sector to coalesce into a few regional champions, with upgraded plants in coastal regions where they have better access to overseas markets.

Although it has not offered direct aid to steel mills, it is offering indirect help through a 4 trillion yuan ($585 billion) stimulus package. And it is also urging companies to invest abroad while commodity and asset prices are low.

Shougang is following the programme closely.

It bought about 40 percent of Australian miner Mount Gibson Iron Ore Ltd (MGX.AX) in December through two of its Hong Kong-listed subsidiaries -- Shougang Concord International Enterprises Co Ltd (0697.HK) and APAC Resources Ltd (1104.HK).

Zhu said his firm had no plans to buy more of Mount Gibson, but it does plan to invest $700 million to $1 billion in its Peruvian iron ore mining project, Shougang Hierro Peru (SHP.LM).

Under the stimulus plan, Shougang recently won a contract to supply 310,000 tonnes of steel, part of a 500,000-tonne deal for oil and gas pipeline construction, Zhu said.

Steel firms will also benefit from China's plans to expand its railway system and machinery industry, Zhu said.

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