Reuters quoted China major steel mills say that benchmark iron ore price increases being mooted by the three big miners are unacceptable and would put most of the country's steel industry in the red.
Here are some of the options the Chinese steel mills might consider as the negotiations approach their traditional April 1st 2010 deadline.
1. CISA PLUS
Mr Wang Shoudong head of state-owned Taishan Iron and Steel has said that a new government organization akin to a metallurgy ministry needed to be established, with direct responsibility for negotiating prices with foreign miners importing ore and then distributing it to customers according to demand.
The proposal is essentially a beefed up version of the approach tried out last year, when the China Iron and Steel Association was entrusted with negotiating with the mining giants on behalf of the steel mills, insisting that as the world biggest market for iron ore, China only had to show unity and resolve in order to win a better deal.
Some mills hope that a government agency, rather than a self-appointed industry body, would be able to fill the role, but setting up a new authority in time to intervene in this year talks would be impossible, and any new body would likely find itself facing the sort of challenges that derailed CISA last year a massive, fragmented steel sector voraciously hungry for any kind of iron ore from overseas, whatever the consequences for the industry as a whole.
2. Unified Importer
Chinese reports earlier this month said that the Hebei Iron and Steel Group, now China biggest steel producer had submitted a proposal to the Ministry of Industry and Information Technology calling for the establishment of a new unified iron ore import company that would be jointly invested by the big state-owned mills.
Previous proposals to allow the likes of the Minmetals Corporation to import large quantities of ore on behalf of small and medium-sized mills were rebuffed, and the new proposal is also likely to be viewed with suspicion by smaller producers already accustomed to paying over the odds for iron ore sold to them by licensed importers.
3. Complaining to Australia and Brazil
CISA and China major steel mills have called on Beijing to take up the issue with Australia and Brazil on a national level, but Canberra has already responded by saying the issue should not be politicized.
Mr Simon Crean Australian Trade Minister said "We recognize China market economy status all we ask in return is that it acts in accordance with market principles."
Analysts suggested that BHP, Rio and Vale already regard the old benchmark system as incompatible with the new and complex realities of supply and demand, and would be even less inclined to accept any kind of government attempt to buck the market.
4. Pushing Ore Suppliers
Mr Yao Jian China commerce ministry spokesperson said last week that the government would help the country steel mills protect their interests in areas such as international trade policy.
China has frequently made threatening noises against the miners, especially during the tensions of 2009, but its options remain limited. Taking the three suppliers to the WTO is unlikely with global trade rules still vague when it comes to cartels. Unilateral import quotas are also likely to pose legal problems.
China could have more luck if it lodges a formal anti-monopoly complaint against Rio Tinto and BHP Billiton plans to establish a production JV, but analysts suggest Beijing is more likely to wait for Europe's anti-trust authority to make a move before responding itself.
Chinese analysts suggest that the country's best long-term option would be to seek out other supply options.
5. Changing the rules
According to the Financial Times it seems China might have to accept a quarterly pricing system, in line with deals agreed between coal miners and steel mills. Japanese mills have already reached a tentative deal on a quarterly pricing system with the big miners, though not on price levels.
For the time being, however, the Chinese government is adamant that the benchmark system needs to be maintained. The Ministry of Commerce said last week that long-term contract prices were necessary to prevent volatility on the market.