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Yahoo! My Yahoo! Mail Yahoo! Search Search: Sign InNew User? Sign Up News Home - Help Navigation Primary Navigation Home Singapore Asia Pacific World Business Entertainment Sports Technology Top Stories Most Popular Secondary Navigation Singapore Asia Pacific World Search Search: China tightening control over steel industry By JOE McDONALD,AP Business Writer AP - Sunday, July 26 BEIJING - China's stolen secrets case against an Australian working for Rio Tinto Ltd. may have more to do with Beijing's push to tighten control over its huge steel industry than trying to dampen industrial espionage. ADVERTISEMENT Chinese officials have complained for years that steel companies paid too much for foreign iron ore, failing to translate China's position as the world's biggest steel producer into clout at the bargaining table. A state-sanctioned industry group was brought in to fix that by taking over price talks. But the China Iron & Steel Association was tripped up, Chinese state media say, because its bottom line was leaked to Rio. "The arrest of the Rio Tinto employees earlier this month appears to be the latest salvo in an ongoing battle between CISA and the major Chinese steel mills," the Chinese newspaper Economic Observer said. The battle reflects the clash between the communist government's insistence on controlling strategic industries and the commercial priorities of China's state-owned companies. The Rio employees, detained July 5 during iron ore price talks, are accused of stealing state secrets. The government has released no details but state media say the employees _ including a China-born naturalized Australian, Stern Hu, who runs Rio's Chinese iron ore business _ are suspected of paying bribes for information on China's negotiating stance. Chinese news reports say executives of at least five major Chinese mills are being questioned. "I think it's clear they are unhappy about the amount of information that the miners have been getting," said Martin Ritchie, Asia editor of industry journal Metal Bulletin. "Perhaps they realized at some point they were unhappy with that and looked for ways to address it." China's steelmakers, long a centerpiece of communist planners' enthusiasm for heavy industry, have grown at explosive rates over the past decade, driven by booming manufacturing, construction and shipbuilding. They now consume up to 60 percent of global iron ore production of 850 million tons a year, nearly all imported. As China's steel industry boomed, consolidation in global mining cut the number of major iron ore suppliers to three _ Rio, BHP Billiton Ltd. and Brazil's Vale SA _ who hold great sway in dictating prices. While China has so far lost out in negotiations, its major steel mills have profited, passing on higher costs to consumers and also reselling iron ore at a markup to smaller mills that lack import licenses. The steel companies' willingness to accept higher prices is believed to be a major reason a displeased Beijing put the steel association in charge of talks. "CISA wants more direct control over iron ore negotiations," said Ritchie. "It wants Rio, BHP and the rest to talk only with CISA, but this year it has managed that only with limited success." Beijing's urgency has been heightened by huge losses at some mills that were paying higher prices for iron ore even after steel prices plummeted due to the global financial crisis. China's buying contracts expired June 30 and talks on a new deal appear to be snagged on its insistence on a price cut bigger than the 33 percent reduction agreed to by Japanese and Korean mills. Chinese news reports and industry analysts say Beijing wants a 40 percent cut following two years of price hikes that totaled more than 100 percent. CISA alerted the government when its negotiators realized Rio _ the lead negotiator for the miners _ "already knew their 'bottom line' position," the Economic Observer said, citing unidentified sources. Investigators who seized a computer from Rio's Shanghai office say it held confidential data from dozens of mills on sales, output and purchasing, according to state media. CISA has refused to comment on the talks or its relations with steelmakers. Rio denied the bribery allegations and declined comment on the talks. The disarray is occurring as Beijing is trying to streamline its jumble of scores of steelmakers and create an elite group of competitors by arranging mergers among state-owned producers and shutting down small, dirtier private mills. A government plan issued in January says that by 2011 the top five producers should account for 45 percent of China's output, up from 28.5 percent today. "Larger steel mills would have more market clout when it comes to bargaining for coke and iron ore while becoming more efficient," Peter Strachan, an industry analyst in Australia, said in an e-mail. "Steel is all about scale." A merger of two state-owned mills last year created the world's fifth-largest steelmaker by output, Hebei Iron and Steel Group, which replaced Baosteel Group as China's biggest producer. Baosteel had served as China's iron ore negotiator since it first took part in price talks in 2003. China's top 27 producers lost a total of 9.6 billion yuan ($1.4 billion) in the first half of 2009, compared with a 36.3 billion yuan profit a year earlier, according to the state newspaper China Daily. "China's steel industry has had a particularly difficult year. Steel prices went up rapidly in 2007 and then crashed in 2008," said Ren Xianfang, senior China analyst for IHS Global Insight. "This is the first time China has had this kind of distress since it joined these talks. They are frustrated by this situation." China has iron ore stockpiles equal to up to three months of demand, which gives it room to hold out for a better price, analysts say. But spot market prices are rising, which means that without a deal Chinese mills could face even higher costs. In a possible move to extend its control, CISA has launched an investigation of who imports iron ore and who uses it, the newspaper 21st Century Business Herald reported. There are signs smaller mills, possibly worried about losing supplies, are rebelling at being forced to let the group negotiate for them. At least 35 small and midsize producers had signed contracts to buy from Brazil's Vale as of the end of June, according to the newspaper China Business News. CISA accused them of undercutting China's bargaining power and it is unclear whether they will be allowed to carry out the contracts. ___ Associated Press researcher Bonnie Cao in Beijing contributed to this report. ___ On the Net: Rio Tinto Ltd.: http://www.riotinto.com China Iron & Steel Association: http://www.chinaisa.org.cn Email Story IM Story Printable View Blog This Sign in to recommend this article » 0 users recommend Related Articles: China's Economy Australia rejects 'protectionist' push to buy localAFP - Sunday, July 26 White gold turns to white knuckles for NZ dairiesAFP - Sunday, July 26 China tightening control over steel industryAP - Sunday, July 26 China, India can help, not save world economyAFP - Sunday, July 26 Related Articles: Business Kuwait financier facing U.S. fraud suit found deadReuters - Monday, July 27 Iraq to hold oil deal roadshow in Turkey Aug 25Reuters - Monday, July 27 Qatar finmin says economy to grow 7-9% in '09 -CNNReuters - Monday, July 27 US-BUSINESS SummaryReuters - Monday, July 27 REIT investors move from fear to fundamentalsReuters - Monday, July 27 Related Full Coverage China Economy china economy All Full Coverage Most Popular – Business Viewed Harry Patch, last veteran of World War I trenches, dies at 111 Lost love letter reunites couple after 16 years Swine flu virus has spread to almost every country: WHO Massive quake moves NZealand closer to Australia Police raid Jackson doctor for manslaughter link View Complete List » Search: Home Singapore Asia Pacific World Business Entertainment Sports Technology Top Stories Most Popular Copyright © 2009 Yahoo! 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