Ma Guoqiang, general manager of Baoshan Iron & Steel, said on May 5 that the considerable rise in iron ore prices has pushed up the costs of steel and the changes in the iron ore pricing mechanism will cause more fluctuations in the operating costs of steel producers.

"For a long time, Baosteel has followed the long-term iron ore pricing mechanism, which has helped the company to maintain stable production, operations and the development. However, there has been a change in the pricing mechanism." Ma said. "If the quarterly pricing system is applied, the company's operating stability, product pricing, inventory management, logistics management and cost control will all be affected."

According to Baosteel, the 2010 iron ore price talks are still ongoing, and steel producers around the world are importing iron ore at tentative prices. Most Chinese steel producers have imported iron ore at the price of 105 to 110 U.S. dollars per ton between April and June, nearly double compared with the same period of the previous year. The iron ore price on the spot market is even as high as 185 U.S. dollars per ton.

"If the iron ore price doubles in 2010, the cost for every one ton of steel will rise by about 600 yuan," Ma added.

Ma said that Baosteel will explore new means of negotiation and pricing, lower production costs by optimizing the production pattern and logistics and modestly invest in iron ore mines.

Baosteel used to be highly cautious about foreign iron ore resources. The company only started investing in iron ore in 2001 during the downturn and locked in 16 million tons of supply. In 2009, it spent 285.6 million Australian dollars to acquire a 15 percent stake in Aquila Resources, an Australian iron ore and coal company.

Baosteel is optimistic about the future of the steel market despite uncertainty in the iron ore market.

"The iron and steel industry is mainly influenced by macroeconomics and downstream demand, and the worst period should already be over in terms of the above two factors," Ma said.

In the first quarter of 2010, Baosteel's revenue exceeded 44.3 billion yuan, up more than 37 percent on the year, and its net profits exceeded 3.9 billion yuan, 44 times that in the same period of 2009. Ma said that the company's net profits in the first half of 2010 will rise by 600 to 1,000 percent compared to last year.