Steel mills and iron ore importers are becoming increasingly concerned over soaring iron ore freight costs, which has  led to the China Iron and Steel Association holding a meeting today with  domestic steel mill members in an attempt to avoid excessive market speculation, industry insiders told Interfax today.

Yesterday's  freight  cost  from Brazil's Tubarao Port to Beilun/Baoshan ports reached $52.43 per ton, up 55.86 percent from the beginning of the year. Freight  costs from Western Australia to Beilun/Baoshan ports have increased  48.64 percent over the previous four months to $23.44 per ton yesterday.

Soaring  iron  ore freight costs over the year have had a greater impact than the  negative  effects  from  this  year's iron ore benchmark price increase  of  9.5  percent  imposed on domestic steelmakers and iron ore traders.  Although  iron  ore  benchmark  prices increased 19 percent in 2006, domestic  steelmakers  were  less  pressured  due to freight costs being lower  than  2005  levels, CISA vice chairman, Luo Bingsheng, said during a recent Beijing press conference.

Chen Xianwen,  a  senior  CISA  official,  previously told Interfax that freight  costs  would  remain  high  in  the long term as current global shipping  capacity is unable to meet China's iron ore demand. Many steel mills are  also  complaining  that  they  can  barely  afford the rising prices.

CISA officials were unavailable for comment on today's meeting.    

"The ever-increasing  freight  costs  can  be attributed both to China's increasing  demand  for  iron  ore,  and  a  global shortage in shipping capacity," a Mysteel analyst, surnamed Gao, told Interfax today.

Gao added  that  the soaring global demand for dry bulk goods, including coke, iron ore and grains, is stretching current shipping capacity.
Shanghai  Securities  analyst  Zhu  Limin  attributed the higher freight costs to  an  increase in China's steel product exports this year. China exported  14.128 million tons of steel products in the first quarter, up 125.3 percent  from  the same period last year, and 1.78 million tons of billet,  up  98.07  percent. Steel product imports stood at 4.27 million tons and billet imports at 80,000 tons.

"We have  experienced  some difficulty in sourcing iron ore, selling and spot ship  chartering,  due to increased freight costs," said a Sinochem International Corporation official, surnamed Liu. Sinochem International Corporation is a leading Chinese coke and iron ore trading company.
However,  an  anonymous  official  from  Cargill,  an  international raw materials  trader,  commented  that  surging iron ore freight costs were mainly market  driven  and  predicts prices will continue to rise in the future.

Large domestic  steel  mills,  including Shanghai Baoshan Iron and Steel Group, Shoudu  Iron  and Steel Group, Ma'anshan Iron and Steel Group and Shangang  Group,  have  a  buffer  against short-term price fluctuations having signed fixed price long-term shipping contracts.

Shanghai  Baosteel  Co.  Ltd. signed 12-year agreement with Nippon Yusen Kaisha,  a  global shipping company for Brazilian iron ore, in September 2005 and  also  signed  an 18-year Australian iron ore shipping contract with China Shipping Development Co. Ltd. in January 2007.

Long-term  shipping  contract  freight  prices  are  based on the annual benchmark  price  for  seaborne freight and the maritime fuel oil price, which is generally lower than the spot-market price.

In 2006,  the  benchmark  price  for  iron ore freight from Australia to China was  $9  per  ton, while the average freight spot-market price was $12 per  ton.  The  benchmark price for freight from Brazil to China was $20 per  ton, while the average freight spot-market price was $27.46 per ton.