Despite unveiling a face-saving iron ore deal with Australia's Fortescue Metals Group on Monday, China's embattled steel industry body CISA seems to be ceding its grip on the levers of China's iron ore pricing talks.
After holding out since last October for a bigger price cut than the top miners were willing to cede, CISA claimed victory in the surprise 35 percent price reduction agreed with Fortescue -- 2 percentage points less than the rate its bigger mining rivals are holding out for after a benchmark deal in May.
But, tellingly, the China Iron and Steel Association made clear that the starring role had been played by China's top steel mill, Baosteel, the latest indication it may be pulling back from its unsuccessful stint leading negotiations after months of growing criticism over its hard-line stance even as spot iron ore prices surged.
Any erosion of the status of CISA, which has used strident rhetoric to champion China's national interest, could have important implications both for concluding long overdue iron ore contract prices and for relations between Canberra and Beijing, which have been tested by the arrest of Rio Tinto employees.
Baosteel, at the very least, is likely to be less concerned with matters of national prestige and more likely to compromise.
As a steel association you don't appreciate the pressures of the market and the urgency of buying iron ore to maintain output. The steel mills have a greater feel for this, said Zhang Chang'an, consultant with World Steel Dynamics.
In April, prices of iron ore on the spot market were down by more than 40 percent year on year and if (CISA) sought an agreement then, the problems wouldn't have been significant. If only CISA had compromised a little then.
At an emergency press conference on Monday, Shan said Fortescue and Baosteel had agreed a price equivalent to a 35 percent cut in exchange for up to $6 billion of Chinese investment in Fortescue.
Chinese steel enterprises represented by Baosteel have held full discussions and conscientious negotiations with Australia's FMG...and agreed a result in 2009 iron ore import prices that both sides accept, CISA said in a statement.
CISA said the pact helped China's quest for a fair deal, but analysts said it was too little, too late to put a positive gloss on its leadership and added to the impression that Baosteel, which led the talks until this year, was back in charge.
It still isn't clear to what extent Baosteel now represents the Chinese steel industry or whether it just represents itself, said Paul Bartholomew of Steel Business Briefing in Shanghai.
TOOK THE LEAD AS MARKET TURNED
CISA took charge of iron ore negotiations for the first time this year and plunged into a hard line in talks with top miners Rio Tinto, Vale and BHP Billiton. Baosteel had been moved aside after failing to prevent a near doubling in contract prices from Australia last year.
But CISA's Secretary General Shan Shanghua has drawn criticism for his tough line and for failing to lock in term iron ore prices just as spot market prices began to swell. Spot prices have surged 50 percent since the initial benchmark in May, and Chinese mills are now paying far more for spot supplies.
His demand for a 40 percent price cut, deeper than the 33 percent won by rival mills in Japan and South Korea, led to a stalemate which turned to diplomatic uproar when China arrested four Rio employees involved in the talks. Analysts say China and Australia depend too much on each other to let the row worsen.
In a sign that CISA was not yet fully ready to relinquish its role, it continued to cite a State Council document apparently vesting it with the authority to represent the industry overseas.
State Council document number six already clearly rules that the unified talks with foreign miners should be organized by the China Iron and Steel Association, said CISA vice-chairman Liu Zhenjiang at Monday's press briefing.
The document on revitalizing steel issued earlier this year did not mention CISA by name but said associations or chambers of commerce could negotiate with foreign ore suppliers and establish a new win-win pricing mechanism.
But, with spot market prices now surging, a number of Chinese steel mills have already ignored CISA warnings that individual deals would be invalid by signing their own interim contracts and senior officials have also quietly diluted their support.
Asked if CISA would continue to represent the Chinese steel industry in next year's talks, Industry Minister Li Yizhong said last week that unity was the key issue, and it didn't matter if it was CISA or Baosteel that represented the Chinese steel sector.
CISA has blamed the industry for failing to unite behind it, and has lobbied for extra powers to enforce a unified price and crack down on rogue iron ore traders and disobedient small mills.
An editorial in the China Youth Daily newspaper last week said CISA had exceeded its authority in its efforts to fix iron ore prices.
(Additional reporting by Alfred Cang; Editing by Clarence Fernandez)