Prices touched $76.50 a metric ton, including cost, freight and insurance, according to Metal Bulletin data. The rise is rapidly erasing the premium of about $8 of this year's benchmark to spot prices, when it was agreed between Anglo-Australian miner Rio Tinto Plc (RTP) and Asian steel mills outside China.
The growing iron ore spot prices and import volumes illustrate the difficult straits in which the China Iron and Steel Association has found itself.
On Wednesday, Shan Shanghua, the association's secretary-general, said China would break off talks, and Chinese steel mills would rather cut production than accept a 2009 price cut less than 40% off last year's rate.
Analysts say that might be wishful thinking.
"It's not possible to control the mills (this way)," said
Henry Liu, of Macquarie Research. "The difference between spot and benchmark is nearly gone."
"If you don't have the bargaining power, and you just cry out, it's not that helpful."
The association's key negotiating strategy with global miners on 2009-2010 term price talks consisted of projecting a weak Chinese economy and marshaling a fragmented industry, even as the country's policymakers guide the country back to growth.
China posted Thursday its second-highest monthly iron ore imports this year, with customs department data showing a 37% increase on year in shipments in May to 53.46 million metric tons.
Spot Prices Close On Benchmark, Steel Prices Rally
Trying to score a bigger price cut than other Asian steel mills, the Chinese have argued, among other things, that China's cut should be deeper than the 33% reduction awarded by Rio Tinto to Japanese, Korean and Taiwanese mills, because spot prices were lower than what the 2009 benchmark offered.
"Despite a 33% price cut, the contract price is still $8 to $9 higher than the spot price," said Du Wei, an analyst with the Beijing-based Umetal consultancy, in early June, when iron ore spot prices were about $67-$68 a ton.
With spot prices now up again, a key plank of China's argument is vanishing.
Brazilian miner Vale S.A. (VALE) settled an even smaller cut for its fines with Japanese and Korean mills Wednesday, closing on a baseline cut of 28% for its fines.
The rise in iron ore spot prices coincides with a recent rally in Chinese steel prices.
Steel shares in China and Australia jumped Wednesday when Baoshan Iron & Steel Co. (600019.SH), China's largest steelmaker by output, raised its steel product prices by up to CNY500 a metric ton in July, said Hu Yanping, an analyst at Umetal.
The hike exceeded market expectations by CNY200-300/ton, Umetal said.
It capped seven consecutive weeks of Chinese steel price increases, which suggests a combination of a tentative recovery in demand and an effort to return to profitability for Chinese mills.
Association Struggles To Control Industry
The association has never been known among market participants as having effective control over a large, far-flung and fractious industry.
China has repeatedly threatened to punish iron ore "speculators" for large imports of iron ore on the spot market.
The association blamed "smaller Chinese mills" for breaking step with its directives by flooding ports with iron ore, which has piled up to about 70 million tons and pushed domestic mines out of operation.
But even as the association postured on the term talks, Vale separately struck iron ore supply deals with 38 small Chinese steel mills this year amounting to a combined 50 million tons, the Beijing News said in a report Wednesday.
These smaller steel mills are privately-owned, which means they are not members of the China Iron and Steel Association.
Now, as spot prices rise, smaller mills may come out looking more agile than their larger brethren still stuck without a contract and forbidden by CISA to trade on the spot market.
"The one good thing that might come out of this for China is that if spot prices go up some more, some of the domestic mines might come back," Liu said.
