Although the ministry did not refer to price caps on its Web site, it said it would increase checks on the quantity, price and origin of spot iron ore.

"Early this year, individual suppliers from abroad, while talking about term contracts, sold spot iron ore to the Chinese market at higher prices. The practice goes against international pricing rules," the ministry said.

The Web site said the move, introduced at the request of steel mills, was aimed at curbing speculation and market disturbances. A recent surge in iron ore imports had resulted in heavy stockpiles at ports and companies, the ministry added.

Despite an attempt by steel mills in China, the world's top producer of the metal, to block term iron ore prices from rising, many in the industry expect 2006 term prices to go up by 10 to 20 percent.

That has led to some traders and steel mills boosting stocks before April, and helped to push up spot prices for raw materials, though not as high as last year's levels. A surge in spot prices helped miners win a 71.5 percent rise in 2005.

This time, steel mills in China, the world's largest buyer of iron ore, have united behind Baosteel Group to get more bargaining power to prevent price increases sought by BHP Billiton Ltd., Rio Tinto Ltd. and Brazil's CVRD.

"Market inspection is allowed by all countries. It doesn't violate the commitments to the WTO," Qi Xiangdong, vice secretary general of China Iron and Steel Association said.

Qi estimated that iron ore stocks in Chinese ports equaled two months' demand.

"That gives a false impression that China's demand is rising."

The ministry also said it would take measures to prevent sales of iron ore to outdated small mills. China's steel industry blueprint calls for closing small and outdated mills and merging and upgrading the larger ones to create an internationally competitive industry.

(Source: Shenzhen Daily/Agencies)