Updated: 2006-03-18 08:52
BEIJING - China's government won't interfere in price talks between its steel makers and foreign iron ore suppliers, a Cabinet minister said Friday, though the government insisted it can't afford another jump in already high prices.

The comments by Ma Kai, the minister in charge of China's main planning agency, came after suppliers expressed alarm at suggestions the world's top steel producer might try to dictate prices following a 71.5 percent rise in iron ore costs over the past year.

"The government will not interfere in setting the price, and the price will be decided by the market," Ma told a visiting group of U.S. newspaper editors.

Ma said, however, that China plans to restrain the growth of its steel industry this year in order to conserve energy and water and cut demand for costly imported raw materials.

China's iron ore imports from Australia, Brazil and other producers rose 37 percent last year amid high demand by its booming automaking, construction and other industries.

Chinese steel makers are in talks with suppliers BHP Billiton Ltd. and Rio Tinto Group of Australia and Brazil's Companhia Vale do Rio Doce over the price of long-term contracts. The suppliers reportedly want price increases of 15 to 20 percent, to take effect April 1.

Ma's agency, the National Development and Reform Commission, and the Commerce Ministry issued a statement this week expressing dismay at rising iron ore prices and calling them unacceptable.

"The government will pay close attention to iron ore price talks and take necessary measures if prices are unacceptable and unreasonable," the statement said.

Last year's jump in iron ore prices prompted complaints over China's apparent lack of bargaining power, even though it imported 275 million tons last year, or about 43 percent of world production.

"This is the first step by China to limit commodity prices. We believe China will likely develop a comprehensive strategy to deal with commodity prices," Andy Xie, an economist at Morgan Stanley in Hong Kong wrote in a report released Thursday.

Although China's market reforms have transformed its major steel makers into modern, international corporations, the government still plays a key role in regulating the strategically important industry.

"The government's role is necessary for big deals; foreign parties are monopolies while Chinese parties are diversified and do not have significant bargaining power," the state newspaper China Daily on Friday quoted Mei Xinyu, a Commerce Ministry researcher, as saying.

Ma said that this year the Chinese government plans to shut down the smallest and least technologically advanced steel furnaces in order to reduce the industry's heavy use of energy and water, as well as to reduce a supply glut for some products.

"In 2006, the strategy for iron and steel production in China is to control the size of this sector and reform its structure," he said.

Ma also affirmed government plans to emphasize environmental protection following two decades of rapid growth that have badly polluted China's air and water.

He said the government's latest five-year economic plan, unveiled at the country's annual meeting of parliament last week, does away with specific economic growth targets and instead imposes mandatory environmental quality goals.

"We are aware we cannot develop our economy at the expense of tomorrow," he said. "We will stick to a path of sustainable development."