As a result of the Rio Tinto spy case, the China Iron and Steel Association (CISA) has halted talks with Rio Tinto and opened negotiations with Brazil's Companhia Vale do Rio Doce (CVRD), to try to achieve a breakthrough on iron ore pricing, Beijing Business Today reports.
According to insiders, China had regarded Rio Tinto as the main partner in this year's iron ore price talks, while the other major Australian iron ore supplier, BHP Billiton, and Brazil's CVRD were seen as having a wait-and-see attitude. However, the outbreak of Rio Tinto spy case has changed the situation.
Last week, China cut its orders of Australian iron ore, while export orders for Brazil's iron ore increased correspondingly. Some analysts say that following the spy case Chinese steel companies and dealers suspended or canceled contracts with Rio Tinto. This brought the price talks to the point of breakdown.
Rio Tinto continued to say publicly that the iron ore price talks were continuing. But on July 17, Sam Walsh, CEO of Rio Tinto issued the following statement strongly supporting his employees "Rio Tinto believes that the allegations that employees were involved in the bribery of officials at Chinese steel mills are wholly without foundation and it fully supports the detainees." Following Walsh's intervention, prospects for meaningful negotiations became even more remote.
An analyst who did not wish to be named told Beijing Business Today that the attitude of Rio Tinto made the prospects of achieving a pricing agreement with China very slim. Any progress would have to wait until after the circumstances surrounding the spy case become clearer.
Zeng Jiesheng, an analyst from the website Mysteel.com said that, of the three major suppliers, BHP Billiton was the least amenable to participating in iron ore price talks, and Rio Tinto was in a tough situation. That left CVRD as the only remaining viable partner. However, in terms of price, CVRD is at a distinct disadvantage. Its free on board (FOB) price is 7 US dollars higher than Australian ore, and shipping costs are over 20 US dollars higher.
According to Zeng, talking to CVRD may be a tactic to bring pressure on Australian iron ore miners. CISA had already said in June that it was planning talks on iron ore imports with CVRD and FMG (Fortescue Metals Group). If the Chinese side signs a long-term agreement, Australian sales of iron ore on the spot market in China would be dealt a major blow.
(China.org.cn by Ma Yujia July 21, 2009)
