Iron ore suppliers to raise prices

There's bad news for Chinese steel makers. The world's three largest iron ore producers -- Rio Tinto, BHP Billiton, and Vale -- have announced plans to raise the price of their products by up to 90 percent. This means hundreds of billions of yuan in losses for Chinese steel makers.

The China Iron and Steel Association has condemned iron ore suppliers' attempt to increase annual prices.

Shan Shanghua, Secretary-General of China Iron & Steel Association, said, "The massive increase in steel production has caused a tense relationship between supply and demand. The three giants, Vale, Rio Tinto, and BHP Billiton, account for 70 percent of the world's sea-borne traded iron ore. They are making supernormal profits by continuing to raise prices."

At the beginning of the negotiations, Rio Tinto raised prices by 40 percent. Then in February, BHP Billiton called for a 50 percent increase, followed recently by Vale's whopping 90 percent hike. If the prices are implemented, Chinese steel manufacturers will have to pay heavy extra costs. Many Chinese steel makers are facing great challenges this year.

Shan said, "The steel industry is already struggling in an era of meager profits. A further price hike will bring substantial losses to steel makers both in China and other countries. The downstream customers or users will also fall victim."

Sea transport of ore is relatively cheap now. But when iron ore demand peaks in April, manufacturers will have to pay more. Europe's steel association has gone further in its attack, saying the plans threaten global economic recovery.

Professor Liu Baocheng from the University of International  Business and Economics

Expert's opinion: How do Chinese companies deal with iron ore trade?

Earlier we talked to Professor Liu Baocheng from the University of International Business and Economics. He gave his advice on what Chinese companies should do in handling iron ore trade. Watch video>>