China's steel industry association yesterday called on domestic mills not to support Rio Tinto's iron ore sales in the spot market before the miner fully executes its term contracts.

The China Iron and Steel Association said Rio filled less than 90 percent of the annual iron ore supply contracts with Chinese companies over the past two years.

Rio informed Chinese firms it couldn't fully implement the contracts due to lack of resources citing force majeure, but meanwhile it announced 15 million tons of ore for the cash market and has been actively promoting spot sales to Chinese firms since the final quarter last year, CISA said in a statement on its Website.

"This forces people to suspect that Rio is intentionally reducing the execution of term contracts while a portion of the supplies was shifted to the spot market for immediate profit," CISA said. "We call on all Chinese mills and trading companies importing ore not to support or participate in Rio Tinto's effort to sell spot ore to China while Rio is not seriously executing its long-term contracts."

Selling on a spot basis is more lucrative than long-term contracts.

CISA said Rio only filled 86.24 percent of the 60.73 millions tons for contracted supply for fiscal 2007 with 21 Chinese firms. Among them, Rio completed only 53.17 percent of its contract with one firm, the association said without naming it. For 2006, Rio filled 88.42 percent of the contractual amount.

Rio said CISA's call for joint action is a "development of grave concern," but added that while fully honoring the terms and conditions under long term contracts, the miner has the rights under the contracts to reduce volumes.

"Rio Tinto can understand that when the market is as tight as it is, mills would want to maximize their volumes," said Sam Walsh, chief executive of Rio Tinto Iron Ore. "However, Rio Tinto remains determined to achieve a fair pricing outcome for its shareholders."

(Shanghai Daily May 16, 2008)