China Economic Review
Charting China’s changing economic terrain · Since 1990
Rio suspends iron ore talks with China
September 6, 2009
There is a splendid bidding war going on between China and Rio Tinto in Australia about the price of iron ore. China is bigger that Rio Tinto, but not by much. Rio Tinto and China have broken off price talks and it is unclear when they will resume.This is advanced haggling and the sums of money involved are immense. The talks on supply contracts for the supply year that began July 1 are deadlocked over how deeply to cut prices following two years of sharp increases.
Sam Walsh, chief executive of Rio’s iron ore business, said in the western Australian city of Perth. "At this point in time we’re not negotiating," He said talks might resume. "I expect they will, but I don’t know when."
China, the world’s biggest steelmaker, is pressing for price cuts of up to 40% following two years of increases totaling more than 100%. Seems fair. Major suppliers agreed to a 33% cut with Japanese and Korean steel mills this year.
Without a contract, Chinese mills are buying iron ore at prices "based on the benchmark" set in talks with other customers this year. The other major suppliers are BHP Billiton Ltd. and Brazil’s Vale SA.
Prices could be changed retroactively to July 1 if Rio and the Chinese steel industry association reach an agreement.
China Daily reports that tensions over the talks rose when four Rio employees were detained July 5 and later charged with bribery and commercial espionage. This does not help negotiations.
A smaller Australian producer, Fortescue Metals Group, agreed August 20 to supply iron ore to China in a deal that Beijing said set a benchmark for prices. Rio said that the deal would have no effect on its talks. The stand-off continues.