The tough-talking China Iron & Steel Association is failing to talk at all with its iron-ore negotiating partners, as steel mill members ignore its directives and entrench the Japanese benchmark price as their own.

"Nobody is talking to anyone," said a well-placed executive at a large mining company, adding that none of the three iron-ore miners had any incentive to initiate further official negotiations.

Vale and BHP Billiton have said they will take a back seat, while Rio Tinto's China iron ore sales team was formally arrested this week for stealing commercial secrets and bribery.

''The major iron ore suppliers all tell me that nobody's talking to anyone," said Francis Browne, an iron-ore analyst at Platts. "They had found themselves in the situation where they're actually negotiating with a government and a government that is proving itself to be unpredictable."

While the China Iron & Steel Association continues to talk tough publicly but prevaricate behind closed doors, the country's steel mills are widely signing deals for Australian and Brazilian iron ore at the benchmark price accepted by Nippon Steel on May 26.

Analysts said the Chinese mills, which operate in the world's largest, fastest growing and most competitive steel industry, had chosen to accept the realities of the market rather than unrealistic official directives. "Business is business," said Jim Jia, a principal at the Shanghai consultancy Mysteel. "We need your iron ore; you need to sell your iron ore".

China, through the China Iron & Steel Association, might not officially agree to any benchmark price this year, he said, but that would have no impact on the market.

The de facto benchmark contract deals are being led by China's largest state-owned mills despite renewed official directives to present a united negotiating front and deep industry anxiety over reports that steel mill executives are being investigated for their dealings with Rio Tinto's Stern Hu.

"All the major steel companies are paying the Japanese benchmark price regardless," said the mining executive.

The breakdown of China's official negotiating position is the latest chapter in the iron and steel association's histrionic but hapless efforts to muster the country's buying power against what they see as the Australian and Brazilian iron ore "cartel".

The association lost the negotiating initiative when Nippon Steel struck the first benchmark price deal at $US61 a tonne for iron ore fines on May 26, representing a 33 per cent cut from last year's benchmark price.

At the time the price of iron ore on the Chinese domestic spot market was $US51.25 but by yesterday it had soared to $US89.45, according to Platts (after excluding freight costs for comparison with benchmark pricing). The association held out - and is still holding out - for a 40 per cent price cut while the supply and demand balance has taken off in the other direction.

Official figures this week show China's steel production and iron ore imports both hit records. BHP's chief executive, Marius Kloppers, estimated China's domestic iron ore production had fallen 70 per cent because of low prices.

Chinese iron ore prices tend to track steel prices, which have risen about 30 per cent since April on ample credit and China's steel-intensive economic recovery.

Steel prices appeared to peak three weeks ago, and iron ore prices may now be following suit, with prices dipping in recent days.

The China Iron & Steel Association, led largely by retired government officials and steel executives, has long been the subject of private jokes in the Chinese steel industry.

But in the past fortnight those criticisms have burst into the public sphere, as the association continues to demand that steel mills unite to pay a consistent "unified" price for imported iron ore.

Last week the veteran steel consultant and academic Xu Zhongbo was given air time to slam the steel association on a prominent China Central Television news program.

"It's not-professional for CISA to practise a 'strike hard''' campaign when "it has no experience in international trade", he said. "It's very annoying this year. At the start the situation was very good, and it seemed like a must-win negotiation. But when the deadline arrived there was no result. Now, no one can predict when the result will come out so CISA needs to find excuses."

On Wednesday the respected media columnist Sheng Dalin ridiculed the association's demand for a "unified" iron ore import price. "Pricing and purchasing are part of enterprises' business freedom," he wrote in the China Youth Daily.

"If a firm can buy iron ore at a price lower than the 'national unified price', why should CISA not allow it to buy?''

And on Thursday the government official ultimately responsible for iron ore negotiations, the Industry and Information Technology Minister, Li Yizhong, appeared to canvass the possibility of allowing Baosteel to re-take the lead negotiating position from the assocation.

''We should pick one entity," he told reporters. "It would be reasonable for [the association or Baosteel to represent China's steel industry in talks with the three top miners.''

However, the Government's failure this year to exert control over the steel industry does not preclude it from trying again. On Thursday it banned steel mills from adding to production capacity in the next three years.

''As the world's largest iron ore importer China should have some say in iron ore trade. But I think we don't have enough influence now," Mr Li said.