In other reports, he was quoted as saying that price negotiations between Chinese steel mills and their foreign iron ore suppliers have been suspended.

However, one industry analyst described Luo's comments as 'Alice in Wonderland stuff', adding: 'CISA is trying to stir things up and to get back into the game but they are being increasingly marginalised.'

Other analysts said CISA's comments reflect increasing frustration at its inability to accept that when the supply of iron ore is tight, buyers do not have much negotiating room.

It is a reality the organisation has struggled to come to terms with even after its humiliating experience last year when it took the lead role in the annual benchmark price negotiations with the iron ore producers and demanded a special 'China price' in the form of a reduction of 40 per cent to 45 per cent.

It was offered the 33 per cent reduction that was accepted by Japanese, South Korean and Taiwanese steel mills, which it rejected, although many Chinese steel mills quietly accepted it.

Last year, 47 per cent of BHP's sales were priced on a quarterly basis but the annual benchmark system was abandoned last month when Vale won a 90 per cent price increase from Japanese mills for a quarterly period. Soon afterwards, Rio announced it was moving to quarterly pricing.

While CISA says discussions have been suspended, analysts say there have not been any price discussions for six months as negotiations are now on a company-to-company, buyer-seller basis.

Most of the benchmark price contracts ended around March and so Chinese steel mills have been negotiating with suppliers and many have signed contracts on a quarterly pricing basis.

'When a contract ends, the seller says if you want to continue, this is the price, while the buyer has the right to decline and look elsewhere if he wants to keep his blast furnace running,' one analyst said.

CISA appeared to accept that the benchmark system was dead yesterday during its media briefing when Luo said: 'Individual steelmakers can approach the global miners for supply in line with CISA rules.'

Earlier this month, the association had urged iron ore importers to impose a two-month boycott on supplies from Vale, BHP and Rio, in protest against its shift to quarterly pricing. However, since the call for the boycott came at a time of surging Chinese steel production, it fell on deaf ears.

Chinese steel production has surged from an annualised rate of 425 million tonnes a year in October 2008 to 656 million tonnes by February this year. Imported iron ore accounts for about 60 per cent of total Chinese consumption.

While China has a huge amount of iron ore, it is low-grade with marginal producers requiring a price of US$120 per tonne to remain profitable.

Many Chinese iron ore producers were forced to close down last year when the price plummeted to US$60 a tonne. It has since tripled to about US$180 but they have been unable to ramp up production.

Also, with the recovery in global steel production, the big iron ore producers have diverted some of their supply away from China to their traditional European and Japanese buyers, further tightening available supply for the mainland.

Macquarie senior commodities strategist Jim Lennon said recently that he believed China would face tight supplies of iron ore over the next two years.

While much has been made of the recent 90 to 100 per cent increases in ore prices, these figures are based on last year's benchmark price. But about 60 per cent of iron ore trading was done at spot market prices, which have been running at between 50 per cent and 80 per cent higher than the now-defunct benchmark price.