Backgrounder
Next year's iron ore talks in jeopardy
By Zhang Qi (China Daily)
Updated: 2009-09-09 08:10
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Next year's negotiations over iron ore prices now look in jeopardy after Rio Tinto finally ended this year's talks with Chinese steel mills without agreement just two months before the 2010 round was due to begin.
Rio Tinto chief executive for iron ore Sam Walsh said the company was no longer negotiating with Chinese steel mills on a benchmark iron ore price for the 2009 contract year. The company is selling iron ore to Chinese steel makers on a provisional price.
Analysts said negotiators were in such a dilemma over the failure to reach agreement that it boded badly for next year.
"The top three 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," said Yu Liangui, director of the research center at Mysteel consultancy.
Officials with the Chinese Iron and Steel Association (CISA), the negotiating body, were not available for comment.
Mysteel's Yu said the most difficult part of the next round of negotiation was whether and how China would insist on a "Chinese mechanism".
Fortescue Metals Group (FMG) agreed on Aug 17 to supply iron ore for all Chinese clients at a 35 percent discount on last year's prices in return for $6 billion of financing from Chinese lenders.
CISA earlier said China would apply this "China mechanism" with Billiton, Vale and Rio, using the FMG prices as a reference point.
"The China mechanism is just a rough concept, without a clear-cut framework," Yu said, adding that CISA lacked communication with other international competitors such as Japanese and Korean steel makers.
"It will be difficult for Chinese negotiators to fight in isolation," he said.
The annual price talks between the three global iron ore miners and China's steel industry have been deadlocked for months after China refused to accept the 33 and 28 percent cuts on last year's prices offered by Australia miners and Brazilian miner Vale respectively and hold out for a 45 percent cut.
However, the 33 percent cut was accepted by Japanese and South Korean steel mills.
Rio's announcement about pulling out of the talks came a few weeks after Vale's chief executive Roger Agnelli said the company was not negotiating with Chinese steel makers over the 2009 benchmark iron ore price.
A senior executive of BHP China told Chinese media that BHP would not match the price agreed with FMG.
"But vital to the iron ore talks for China is the need to reduce its reliance on BHP, Rio and Vale and accelerate overseas investment and operations," said Yu.
