Rio Tinto said yesterday that it was no longer in negotiations with China over multibillion-dollar iron ore contracts, signalling a shift to softer diplomatic relations between the miner and its largest customer.
The annual negotiations to settle iron ore prices have become fraught with difficulties this year, not least because of the arrest in China of Rio’s four-strong negotiating team on allegations of industrial espionage and bribery. The arrests prompted speculation that China was trying to intimidate Rio Tinto into agreeing a lower price for its iron ore this year. The world’s second-biggest miner may also be facing a backlash following its decision to reject a $19.5 billion (£12 billion) capital injection by Chinalco, the Chinese state-owned metals group, in a deal that would have been the country’s largest foreign investment. Sam Walsh, the head of Rio Tinto’s iron ore division, admitted yesterday that there were no active price negotiations under way. However, analysts said that behind the scenes it was very much business as usual and the company had quietly secured the pricing structure it wanted all along. The row between Rio Tinto and China comes after six years of price rises for iron ore, the raw material used to make steel. But a collapse in steel demand this year brought about by the economic slowdown has encouraged the Chinese to insist on a much lower price for 2009-10. China’s official iron and steel trade body, CISA, has pushed for a steep discount of between 40 per cent and 50 per cent off last year’s benchmark price. Rio Tinto has held out for a 33 per cent discount, which has already been accepted by Japanese and Korean mills. Formal negotiations with China may have reached an impasse, but Chinese steel mills need supplies to meet a recent surge in demand. As a result, the two sides appear to have reached a private compromise and China’s steel mills are buying supplies from Rio Tinto at a price that is 33 per cent lower than last year’s benchmark — the same price that the miner has agreed with other customers. Rio Tinto has not publicised the deal, which analysts believe is a face-saving gesture towards the Chinese. “Maybe the year ends without an agreement and the Chinese simply pay the same as the Japanese under the banner of a provisional price, then live to negotiate a fresh contract next year,” the chief executive of a small mining company said. The surge in Chinese purchases will lift Rio Tinto’s total iron ore exports to more than 200 million tonnes this year, despite the slump in demand for the raw material experienced during the first quarter. “We are shipping every tonne we can produce and we are producing more than last year,” a Rio Tinto spokesman in Australia said. China’s aggressive buying comes despite the arrest of Stern Hu, the chief iron ore negotiator, and three other employees two months ago. The four Rio Tinto employees were initially accused of stealing state secrets but this has been downgraded to industrial espionage. Chinese state media has alleged that they were gathering information from steel mills to give them a favourable position in the iron ore negotiations. Rio Tinto has denied any wrongdoing. China’s quiet adoption of the Japanese benchmark price has come as spot prices for the metal surged to almost $100 per tonne earlier this summer. -- Posted By anjos to Business Blog at 9/04/2009 11:12:00 PM [Non-text portions of this message have been removed]
