As previous contracts expire, negotiations between large Chinese steel makers and Australian iron ore minors have stalled, as the debate has focused, in part, on logistics costs.

Earlier in the year, Brazil’s Vale de Rio Doce signed contracts with a number of Asian steel producers that included staggering price increases of 65-71%, by most reports. Vale is the world’s largest iron ore producer by far, with almost double the production of its Australian competitor, number 2 producer Rio Tinto. However, the number 3 player, BHP Bilton, also with part of its headquarters in Australia, is in the process of trying to acquire Rio Tinto, which would then rival Vale in the level of ore output.

In the past, when one of the major producers signed the first new contracts, as Vale did earlier, it would set the benchmark for the other producers, which would generally quickly sign contracts reflecting the first agreement.

But not this time. The Australian miners are taking a more independent track, apparently feeling they have negotiating power, and arguing they should get a higher price because it is less expensive to ship the ore from Australia to other parts of Asia than it is for the Brazilian mines taking a much longer sea route.

China, however, is rejecting this “total landed cost” argument.

“Australia is trying to add transportation costs to the 65% increase already agreed on for iron ore supplies this year,” Zhang Xiaogang, general manager of Angang Steel Group and the director of the China Iron and Steel Association, recently told reporters in China. “The Chinese side doesn't want to accept that.”

Regardless of how things end up, the soaring prices for iron ore will greatly affect the overall prices for steel and products made from it.

What kind of impact will soaring iron ore prices have on steel prices in 2008 and beyond? Are there cost saving alternatives for some manufacturers? Let us know your thoughts at the Feedback button below.