May 19, 2008
China Urges Rio Tinto Iron Ore Boycott
Rio Tinto is confident it will conclude its annual contract negotiations with Chinese steelmakers by the end of next month, despite calls by the country's industry association to boycott the company's spot sales of iron ore.
Rio has angered some Chinese steel mills by exercising flexibility clauses in its contracts that allow them to divert sales of 10 per cent of iron ore from contractually set prices to the spot market, where prices are considerably higher.
However as negotiations between the two sides become increasingly fraught, the China Iron and Steel Association said Rio filled only 86.2 per cent of its long-term contracted supply with Chinese firms in 2007 and 88.2 per cent in 2006.
"We call on all Chinese steel mills and all trade companies importing iron ore not to support or participate in Rio Tinto's activities to promote spot iron ore trade in the Chinese market," the association said.
Rio's iron ore chief, Sam Walsh, said Rio had lived up to its contracts and would continue to negotiate long-term supply contracts for its ore in good faith.
Already, Vale, the Brazilian group, has secured annual price rises of up to 71 per cent, but Rio and others who export to China from Australia have demanded a higher premium to reflect China's lower shipping costs.
"Rio can understand that when the market is as tight as it is, steel mills will want to maximise their volumes from Rio Tinto," Walsh said, adding: "Rio Tinto remains determined to achieve a fair price outcome for its shareholders. As with any other iron ore supplier, Rio Tinto is entitled to sell into the spot market.
"To suggest joint action by the Chinese steel industry to prevent this is a very concerning development."
By David Litterick