Rio Tinto-China tensions may jeopardize 2010 iron ore negotiations

Since Rio Tinto broke off talks with Chinese steelmakers just two months before the 2010 round of negotiations was slated to begin, it could put them at risk.

Author: Mineweb Reporter
Posted: Thursday , 10 Sep 2009

After Rio Tinto recently suspended iron ore talks with Chinese steelmakers, next year's negotiations over iron ore prices may be jeopardized.

Yu Liangui, director of the research center at Mysteel Consultancy said, "The three top miners and the Chinese buyers are unlikely to achieve an agreement this year as both sides are intransigent. However, negotiations for next year also bristle with difficulties."

Complicating matters is the fact the head of Rio's Chinese iron ore operations in China, is now jailed after being charged with industrial espionage. And three other Rio employees are also being detained.

Without a contract, Chinese mills are now being forced to buy iron ore at the benchmark prices, which China is refusing to accept.

Yu told China Daily the most difficult part of the next round of negotiation was whether and how China would insist on a "Chinese mechanism."

Earlier this year, The Chinese Iron and Steel Association (CISA) agreed a deal with Fortescue Metals, whereby it would receive a 35% discount on iron ore for all Chinese clients in exchange for $6 billion of financing from Chinese lenders.

CISA has said that China would apply this "Chinese mechanism" with Billiton, Vale and Rio in the hopes of lowering prices.

"The China mechanism is just a rough concept without a clear-cut framework," Yu said.

He explained the CISA lacks communication with other international competitors such as Japanese and Korean steel makers. "It will be difficult for Chinese negotiators to fight in isolation."

Yu said China needs to reduce its reliance on BHP, Rio and Vale and also accelerate overseas investment and operations.