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The steel production overcapacity currently seen in the country is only “light” and steel mills should prepare and prevent a severe winter when overcapacity becomes “serious”, he told delegates at the 13th China International Steel & Raw Materials conference in Qingdao on Wednesday September 25.

“Our view is, however, that we may not avoid the winter before the spring comes,” he said.

A consolidation is needed but he expects it to take at least five to ten years before China could complete the process.

In terms of raw materials purchasing, Dai said there were flaws in both long-term benchmark negotiations and index-lined pricing.

“In the future, the pricing mechanism needs more imagination and creativity,” he said.

He did not specify any preferred pricing mechanisms.

In the meantime, however, Dai urged the industry to participate more actively in index calculation by contributing details of concluded deals and giving pricing agencies a bigger pool of samples.

This would hopefully make the index numbers fairer, he said.

There had been criticism from Chinese mills about the small sample sizes of iron ore indices.

He also called for more active utilisation of trading platforms such as the China Beijing International Mining Exchange and Global Ore to “make the market more transparent and reasonable”.