BEIJING - Recycling scrap metals is a way to reduce Chinese steel mills' dependence on imported ore and ease pressures from the surging iron ore prices, industry experts said.

The proposal comes amid reports that Chinese steel mills have accepted global miners quarterly pricing system for their ore at over $110 a ton for April-June contracts - more than twice last year's fixed price.

Chinese companies should bolster investments in the logistics and supply chain for scrap steel to reduce dependence on imported ore, said Cai Jin, vice-chairman of China Federation of Logistics & Purchasing.

As a substitute for iron ore, recycled scrap steel currently accounts for 8 percent of total steel production in China, while the figures in developed countries like the United States and Japan have reached 50 percent and 40 percent respectively, said Yu Liangui, a senior analyst at Mysteel.com

Considering China's huge demand for steel production, it would be ideal if recycled steel could account for 20 percent of the raw materials used by Chinese steel mills, said Wang Guoqing, a steel analyst with Lange Steel Research Center.

The steel scrap cycle takes eight years for the auto and home appliance industries, while the infrastructure and real estate sectors require 30 years, she said.

"Raising the proportion of imported steel scrap is one way, but it might result in price hikes for imported steel scrap," she said. "Hence, enhancing the efficiency of steel scrap recycling technology in China is more important."

But recycling nor new technologies cannot ease pressure from surging iron ore prices in the short term, especially in the next 10 years, she added.

Chinese steel mills have long complained about a dependence on iron ore imports, putting them at a disadvantage in iron ore price talks. Iron ore imports account for 62.3 percent of total consumption in China.

Steel mills increased iron ore imports by 42 percent to a record of 628 million tons in 2009.

The three giant miners - BHP Billiton, Rio Tinto and Vale - have leveraged their positions to raise prices to unreasonably high levels, putting steel mills around the world in a difficult situation, Luo Bingsheng, vice-chairman of China Iron and Steel Association, told a recent iron ore conference.

Earlier reports said the three miners have signed contracts with Chinese steel mills individually for iron ore at prices over $ 110 per ton for the April-June period.

The spot price is even higher, with 63 percent ore content Indian ore traded at 1,290 yuan ($177) per ton including freight on April 30, up 130 yuan from a month earlier, according to data from Mysteel.com.

CHINA DAILY

(China Daily 05/05/2010 page15)