Australian Mining Group Protests over China Boycott

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May 16 –The Australian mining group, Rio Tinto, is protesting over what it calls aggressive negotiating tactics after China Iron & Steel Association (CISA) asked its members to boycott the company’s spot sales of iron ore.

In a statement made on its web site, CISA said: “We appeal to domestic mills and traders not to support or take part in Rio Tinto’s spot iron ore sales activities in China.”

CISA, Rio Tinto and BHP Billiton have been gridlocked in price negotiations for months now. Rio is demanding a 65-71 percent price hike compared to what CISA pays for ore from Brazilian miner,Vale.

It is cheaper for Chinese steel makers to transport Rio’s ore from western Australia because it is almost three times closer to China than Brazil.

This year, Chinese authorities have stalled some import permits for Australian iron ore, a move that Rio claims is also a negotiating tactic.

Rio has said it will shift from traditional long-term contracts by concentrating more ore into the spot market. The spot market commands higher prices at US$180-US$190 a ton compared to Vale and Chinese steel makers agreed prices of US$$108 per ton.

CISA said Rio Tinto is acting in bad faith, adding that the company did not have enough supply to answer long-term contracts while offering iron ore on the spot market to capture higher prices

Rio was quoted by FT as saying,“For CISA to suggest joint action by the Chinese steel industry to prevent this is a very concerning development.”

According to CISA, in 2007, Rio was only able to fulfill 86 percent of iron ore contract requirements with Chinese steel makers while in 2006 it supplied 88 percent.