"I view iron ore as an intermediate ingredient that only has value because it is processed into steel by the steel industry," Shan told a conference in the Chinese port of Dalian.
China, the biggest buyer of the raw material used in making steel, expects to lift iron ore production by about a quarter to more than 1.1 billion tonnes this year and cut imports as it tries to rely less on the global miners.
Its steel production cutbacks, part of a campaign to trim energy costs and excess supply, hurt iron ore prices this month, thwarting market attempts to resume a rally that lifted prices to two-year highs in April.
That rally followed a landmark shift in pricing iron ore by the three biggest producers, Vale, Rio Tinto and BHP Billiton to a quarterly system from a 40-year-old annual scheme.
CISA, which represents 78 of China's top steel mills, has been fighting the pricing battle for years, determined to get the upper hand in negotiations with the big three miners.
Rio said on Tuesday a move to a monthly pricing system would be "destabilising" for the steel industry.
"Our position for this fiscal year has been to give the quarterly pricing system a chance to operate," said Warwick Smith, managing director of sales and marketing at Rio's iron ore arm.
But Shan said the current system, based on price indexes, reflected only a small portion of the iron ore trade that passed through the spot markets, and therefore should not be the determinant of seaborne iron ore prices.
"Spot trading is mostly through small mills and therefore not representative of the market."
Investigators had found evidence of collusion between end-users and traders to fake spot import contracts, he said.
The war of words peaked last year when CISA failed to clinch an annual pricing deal and China arrested and jailed four Rio employees, including one Australian, for stealing commercial secrets and taking bribes.
Shan said Chinese mills will not pay more for iron ore if miners' costs rise because of a plan by Australian Prime Minister Julia Gillard to slap a 30 percent tax on iron ore and coal mining profits from 2012.
"Chinese steelmakers will not be able to accept rising costs from the Australian iron ore mining tax as steel prices will reach a ceiling, and downstream users including automakers and producers of home appliances won't absorb rising costs," Shan told Reuters.
China has been boosting domestic iron ore production to cut imports, although its ore has far lower quality than imported ore, suggesting the country may be unable to significantly trim imports.
But Shan said iron ore imports this year would fall from 2009's 627.8 million tonnes, adding that China would recycle more steel scrap, with 100 million tonnes expected to be generated this year and more in the future.
The decline in ore imports follows a managed reduction in China's steel output as the country rushes to meet a five-year energy conservation goal due this year, but Shan said mills can resume normal operations if they see demand recovering.
"The energy saving target is not the major reason for the production cuts, but the oversupply," Shan said.
"If demand picks up quickly, there is nothing to stop steel mills resuming production."
CISA has said that while domestic steel prices will remain volatile in the near term, demand should pick up in the fourth quarter because of the growing Chinese economy.
The cutbacks, mostly focused on small, inefficient mills, have not affected China's overall steel production, with daily crude steel output even growing modestly in the first 10 days of September, according to data from CISA last week.
Source: Reuters
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