The negotiation on iron ore supply between China's largest iron and steel maker, BaoSteel Group, and world major iron ore suppliers is expected to achieve result in the end of February, disclosed Su Lejiang, Chairman of BaoSteel.

   Xu said the 65 percent price rise will be the benchmark, not the 71 percent. Xu was attending the signing ceremony on founding of a shipping joint-venture company with the China Shipping Development Co Ltd held in Shanghai on February 21.

   The massive 65 percent price rise in iron ore agreed between Japanese and Republic of  Korea (ROK) steelmakers and leading Brazilian iron ore supplier Vale could set a 2008 benchmark for Chinese firms.

   Xu said according to the practice in the past 28 years, the first price set through negotiation between major iron ore suppliers and steel makers in the world shall be confirmed and accepted by other steel makers afterwards. China has not announced the acceptance indicating the negotiation is still going on, and the result is expected to come out in the end of this month, said Xu.

   Although China's largest iron and steelmaker -- Baosteel Group -- was still negotiating with the world's major iron ore suppliers, major Chinese steelmakers were likely to follow international practice and use previous agreements as benchmarks, said Hou Wei, a senior analyst with the Chinese Umetal.com website.

   The world's largest iron ore provider had concluded negotiations for 2008 with the largest  German steelmaker, ThyssenKrupp Steel, with prices for two types of iron ore fines up 65 and 66 percent year on year.

   Hou said the price rise was "within expectations". Baosteel was still negotiating with Vale in southern China's Hainan province, according to the China Securities Journal.

   Gao Bo, an analyst with the Chinese Mysteel.com website, predicted that after the iron ore price hike, the average cost for domestic steel makers went up 30 U.S. dollars per ton of steel.

   China, the world's largest steel producer and consumer, imported 383 million tonnes of iron ore in 2007, up 56.8 million tons or up 17.4 percent year on year, according to the China Iron and Steel Association.

   Zhang Jingang, vice secretary-general of the association predicted the country would import more than 400 million tonnes of iron ore this year, which meant the aggregated cost for the whole industry would see a more than 10 billion U.S. dollars increase.

   Gao held that the Chinese steel industry could handle this kind of price increase.

   Hou said the iron ore price rise would bring more pressure to bear on smaller Chinese steel mills, adding that the recent price rise of coal would also increase the manufacturing cost for domestic steel makers.

   China's producer price index (PPI) surged by 6.1 percent in January year on year, the largest monthly rise in three years, according to the National Bureau of Statistics. 

   The price of crude coal surged by 14.9 percent in January over a year ago as the freakish weather gave rise to a coal shortage.

   Analysts with the Chinese Chemease.com website predicted that although Baosteel imported more than 90 percent of its iron ore, the iron ore price rise would not affect its profitability too heavily, as it could switch the cost by raising steel product prices.

   They also believed that the competitiveness of those domestic steel makers who have iron ore resources within their hands including Angang Steel and Baotou Iron and Steel Group would be enhanced.