China Mining reported that affected by sluggish market demand for iron ore and rapid increase in supply, China's iron ore market as plunged into a sluggish state of price drop and bleak transaction.

Experts hold that continual slipping of market price of iron ore may produce influence on price negotiation for iron ore for 2009. Theoretically, price drop of steel products will inevitably force steel plant reduce their demand for iron ore and press for lower prices.

But talking of negotiation, as the three iron ore giants all have two systems: one for supply and one for spot price, there will be certain gap between the price and spot price. Therefore, though the price of domestic spot iron ore supply and the price of imported spot iron ore supply have dropped together with the slipping of steel prices, compared with the targets of the three iron ore giants, there is still a certain gap.

In view of the situation, Mr Zhou Xiaoming Langesteel Analyst said that affected by drop of steel prices, many enterprises have cut their purchase of iron ore raw materials, and the decrease in demand will influence the negotiation for iron ore prices. But the original iron ore price negotiation mechanism exists some problem: still calculating on the basis of FOB.

As the Australian side will go on demand compensation for sea transport fee, the growth of agreed price would inevitably be higher than the FOB of CVRD. CVRD may require increase of FOB, which may made the negotiation more complicated.