Sinosteel president Huang Tianwen said he believed the 71.5 percent price increase agreed between major Japanese steel mills and the major Australian iron ore producers for 2005-06 was too high and a cut next year would help the sustainability of the industry.

“For the long-time interest of iron ore suppliers, including BHP it will be beneficial,” he told West Business yesterday. “We are hoping the price of iron ore next year should be balanced.”

Mr Huang made the comments after signing an agreement with West Perth-based iron ore hopeful Midwest Corporation for a joint venture that could see Sinosteel and Midwest jointly develop the Australian company’s high-grade Weld Range and low-grade Koolanooka deposits east of Geraldton.

Sinosteel has agreed to kick in f16.3 million to fund a feasibility study into a f1.5 billion mining and infrastructure development.

The investment comes as Chinese steel mills, which are supplied with raw materials by Sinosteel, undergo a massive production boom that is likely to see steel production increase this year to 340 million tonnes from 272.5 million tonnes last year.

China has traditionally been a smaller player than Japan in the iron ore market but it now attempting to flex its muscle as it becomes the world’s biggest producer of steel, feeding booming construction of property and infrastructure in the world’s most populous nation.

Mr Huang raised doubts about whether Chinese mills would continue to accept prices agreed between their Japanese rivals and the big three iron ore miners, BHP Billion, Rio Tinto and Brazilian major CVRD.

He pointed to BHP Billion in April dropping a demand for Chinese steels mills to pay a 100 per cent increase, a capitulation that came just as Prime Minister John Howard was heading to Beijing to discuss a free trade agreement.

Mr Huang said China previously had not been in a position to play a big role in price negotiations because of its relatively small tonnages, but it now had a powerful position in the world iron ore market.

He said he believed the power of the Chinese steel mills would be reinforced at the upcoming season of negotiations over the 2006-07 iron ore prices. “We are determined to win our rights as soon as possible,” he said.

  The Australian Financial Reviews Sinosteel joins iron-ore project

Sinosteel, China’s biggest importer of iron ore, signed a joint venture yesterday with Midwest Corp to develop f1.5 billion of mineral deposits in Western Australia’s booming mid-west.

Sinosteel has agreed to match Midwest Corp’s contribution of f16.3 million to undertake a feasibility study of the company’s deposits at Weld Range and Koolanooka. The West Australian government is hoping to develop the mid-west as the state’s next Pilbara.

State Development Minister Alan Carpenter said the agreement also marked a significant milestone in the resources sector, with Sinosteel becoming the first Chinese investor in a WA iron-ore project at the pre-feasibility stage.

“The Project Studies Joint Venture agreement will see Midwest Corporation and Sinosteel fund scoping, pre-feasibility and bankable feasibility studies on a 50-50 basis for the f1.5 billion Koolanooka Magnetite and Weld Range Hematite Projects in the mid-west region,” he said.

Mr Carpenter said the two iron-ore projects had the potential to create up to 2700 construction and operation jobs.

“This agreement is a tremendous boost for the mid-west region’s burgeoning iron-ore industry,” he said. “Midwest Corporation is already investing substantial funding in transport and storage infrastructure at key locations, particularly Geraldton and at its mine sites at Koolanooka and Blue Hills”

“And Sinosteel has shown it is serious about developing new sources of iron ore for supply to steel mills in China, and is prepared to invest significant amounts of money in Australia to ensure it has a stable and diverse source of iron ore.”

The partnership was another indication of the growing strength of Western Australia’s trading relationship with China, WA’s second largest trading partner, Mr Carpenter said.

Strong Chinese demand helped push the worth of the state’s China-bound exports to f6.6 billion in 2004-05 from f4.4 billlion in 2003-04, Mr Carpenter said.

He said Sinosteel was one of the two largest state-owned resource and metals trading companies in China.

In the 2004-05 budge papers, iron-ore royalties were estimated at f426 million, increasing to f736 million in 2005-06.

Sinosteel has had talks with Andrew Forrest’s Fortescue Metals Group’s iron-ore project in the Pilbara, despite a stand-off between Mr Forrest and China Metallurgical Construction group president Shen Heting.

The head of Sinosteel, Huang Tianwen, said there were doubts as to whether the project would proceed as the reserves still had to be determined and market demand could change.

Midwest Corp is a revamped version of the former Kingstream project, which failed to get off the ground.   The West Australian   The Australian Financial Reviews