July saw China’s top steel makers go head-to-head with their Australian iron ore suppliers over price and procurement.
Australian mining giant Rio Tinto secured a record 96.5% year-on-year increase in iron ore contract prices after negotiations with Chinese steel firms, while Brazilian miner Vale followed suit with hikes of between 65% and 71%.
This left BHP Billiton, the world’s third-largest miner, to reach a pricing arrangement. BHP one-upped Rio and Vale, saying it wanted more than a 96.5% increase, as prices did not provide an adequate freight premium.
BHP rubbed salt on the wound when it then proposed ditching annual pricing agreements altogether in favor of a pricing index. The China Iron and Steel Association fired back, calling the suggested scheme an “improper and unfair” way to set ore prices.
Brief murmurs of a Chinese boycott of BHP iron ore were summarily quashed 10 days later when Baosteel, the country’s second-largest steel maker, acquiesced to a 97% price increase – under an annual contract set-up that will start from April 1.
Other Chinese steel makers sought to take matters into their own hands.
Beijing-based Shougang’s US$4.3 million bid for 19.9% of Property Resources failed to receive regulatory approval in Australia, meeting a similar fate as its April bid for a stake in Mount Gibson.
Sinosteel had better luck. After thwarting Perth-based Midwest Corp’s proposed merger with local rival Murchison Metals, Sinosteel proceeded to buy shares from four Midwest directors to cross the 50% threshold and gain a controlling stake in the miner.
It is the first successful hostile bid by a Chinese company abroad, and it will allow Sinosteel to accelerate mining and transportation development and ship iron ore to China by itself. Who needs a middleman?