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Iron ore benchmark deal expected in April - Anshan Iron and Steel

But, the president of the Chinese iron and steel group urged the big iron ore suppliers to be "more reasonable" in their demands

BEIJING (Reuters) -

A deal on benchmark iron ore prices is expected to be reached in April, the president of China's Anshan Iron & Steel Group said on Wednesday, but urged the big ore suppliers to be more reasonable in their demands.

Negotiations in 2009 between the big miners and mills broke down when Chinese buyers failed to win bigger discounts than Japanese and South Korean rivals and many market watchers had expected long and potentially fruitless talks for the 2010 contract.

With spot iron ore prices trading at double last year's contract price, analysts are looking for rises from 65 to 80 percent -- levels that few think China will find palatable.

"I am not taking part in the negotiations but a result should come out by April 1 -- it is almost mid-year and if a price hasn't come out by then, it isn't normal," Zhang Xiaogang said.

The head of China's fourth biggest steel producer, also known as Ansteel or Angang, refused to put a figure on how much the price would increase this year, but said it was likely to be "much higher" than the 20 percent expected at the end of last year.

"What a normal price should be is hard to say, but you shouldn't have one side making losses and the other making excess profits," he said.

"All steel firms feel the same way -- whether it is Nippon Steel, JFE, Posco, Thyssen Krupp, Mittal, US Steel or us -- we all feel deeply dissatisfied, but we have no option (but to accept the price rises)."

Speaking on the sidelines of China's latest parliamentary session, Zhang said he had heard about proposals aimed at revising the decades-old benchmark pricing system, but whether it would happen this year would depend on the result of the negotiations.

Angang's own mines supply around 40 percent of its iron ore requirements, and it buys all the rest from the three mining giants -- Rio Tinto (RIO.AX: Quote) and BHP Billiton (BHP.AX: Quote) of Australia and Brazil's Vale (VALE5.SA: Quote).

Zhang said all of that would normally be supplied through long-term contracts but the proportion of spot market purchases has been steadily rising recently.

MARKET IMBALANCE

Zhang said steel mills across the world were all facing losses because the dominant miners had lost sight of the crucial balance needed to be struck between the steel industry and their iron ore suppliers.

"These are two stages in a production process and the profits should be calculated together. If the market is good we share the profits and if it isn't good we share the costs.

"But now the situation is different. European, Japanese, Korean and Chinese steel mills are all facing losses but the mining firms are making huge profits."

He said the situation was forcing steel mills to acquire their own iron ore deposits in order to circumvent the big miners -- and Angang has itself bought a small 10 million tonne deposit in Australia that will go into operation next year.

"It is not normal, but we have been forced into this," he said.

While the domestic steel market faces huge uncertainties in the next year, Zhang Xiaogang said he expected his firm to lift its annual steelmaking capacity to 40 million tonnes within two years.

The company aims to acquire two more steel processing facilities in Europe this year after taking over similar facilities in Spain and Italy last year, Zhang said.

He also expects it to wrap up a protracted merger with Benxi Iron & Steel (Bengang) before the end of this year and then proceed with plans to take over the Sichuan-based Panzhihua Steel, which he said was likely to go far more smoothly.

Angang and Bengang have been working on the merger for five years as part of a nationwide scheme to consolidate the steel sector.

"We've been talking about this for so long that I don't dare to mention it again," Zhang said.

"We've said we'd do it every year and every year we haven't, but by the time we meet again next year we are unlikely to be discussing this subject." (Editing by Jacqueline Wong and Clarence Fernandez)