China has 112 steel mills and ore traders with import licenses, enabling them to buy iron ore under the pricing negotiation mechanism.

The surge in imports helped push up spot market prices, which, on June 29, hit a four-month high of US$78 per tonne, exceeding the annual benchmark level agreed between the three miners and big steel makers elsewhere in Asia.

Spot prices have climbed 20.3 percent since Rio Tinto settled contract prices with Japanese mills on May 26.

The price rise would give Rio Tinto more edge in negotiations, says Hu Kai. "There is no reason for Rio Tinto to back off its stance though the CISA is talking tough."

The miner could sell on the spot market for more than the contract price, and some Chinese mills have started buying ore at a provisional 33-percent price cut in advance of an agreement, he says.

Gervase Greene said in the email that "if customers seek to buy ore on the spot market instead, then they will."

The CISA had a stronger hand during the last quarter of 2008, Hu says. But China's economic situation has since changed with steel output rebounding and prices picking up, boosted by the recovering real estate sector and massive infrastructure construction.

"It was a significant step for the CISA to gain power in setting iron ore prices this time no matter how the talks end as CISA showed its toughness and determination." Zhang Lin says.

The key to more pricing power, she adds, would be for Chinese mills to enhance consolidation and concentration of the steel industry.

(Xinhua News Agency July 3, 2009)