China's major steel makers and trading firms yesterday agreed not to profit from iron ore sales as the industry seeks to further regulate trading of the metal.

The companies, which are members of the China Iron and Steel Association, agreed to only charge a premium of 3 to 5 percent to resell imported iron ore contacts at a meeting in Beijing, according to a participant.

As only eligible bigger mills and traders in China are permitted to import iron ore, the steel-making ingredient, under a quota system, many smaller miners were forced over the past years to buy ore at high spot prices from bigger ones which had sourced it at much lower annual term prices. But that practice stopped after the second half last year when spot prices began to tumble.

In 2007, about 20 million to 30 million tons of iron ore were sold at high prices, or scalped, according to Hu Kai, an analyst with specialist Website Umetal. China imported 383 million tons that year, of which about 220 million to 230 million tons were under term contracts.

Less than 20 million tons were scalped last year as no one asked for contracted ore in the second half after spot prices fell below term prices, Hu said.

"Under such circumstances, banning scalping means urging trading companies not to hoard ore," Hu said. "Ore hoarding will create a false demand picture for China, leading to higher prices."

But an official at a northern steel plant said there may be difficulties for such a ban to be implemented effectively.

At the meeting, steel makers also agreed to a proposal to ban the sale of their products in China below costs.

(Shanghai Daily February 20, 2009)