iron ore up again!, page-23

China 'sabre-rattling' on iron-ore price: FMG chief
6 Dec, 11:25 AM
IndustriesResources and EnergyEconomyChina
By Amanda Saunders

Fortescue Metals Group chief executive Nev Power has dismissed talk the big iron ore producers manipulate spot pricing of the raw commodity, saying China “sabre rattles” over the issue.

Mr Power, who heads the world’s fourth-biggest iron ore producer, says every increase in the iron ore price is read as a possible manipulation by the Chinese.

He dismissed allegations of manipulation in the spot market, adding that if it were the case the impact on price would only last days.

“CISA (China Iron and Steel Association) loves beating their drums about it but they don’t do anything, they just talk about it, and threaten and sabre-rattle,” Mr Power says.

“I understand that as a country, they want to make sure the price is fair and transparent. The price is fair and transparent – it is just the market that moves it.

Occasional moves by BHP Billiton and Rio Tinto to buy their own cargos on the electronic exchange, “sends the Chinese into orbit”, he says.

“They see this as direct evidence that the market is being manipulated,” he says.

But iron ore companies have “every right” to buy their own product, citing the practice among car dealers of buying their product to get numbers up, Mr Power says.

In January this year BHP Billiton bought a 100 000-tonne shipment of iron ore on the Singapore exchange, which was seen as a move to stop a price decline and drew the ire of the Chinese media.

Since mid-August the iron ore price has sat between $US130 and $US140 a tonne, after a volatile six months for the raw commodity that saw it drop from a high in February 2013 of $US158.90 a tonne to $110.40 a tonne in June.

China has made many thinly-veiled swipes at BHP Billiton and fellow top global iron ore exporters, Rio Tinto and Brazil’s Vale, over price manipulation.

Speaking after a tour this week of the iron ore giant’s operations in Port Hedland, Mr Power said Fortescue was asked all the time to fix the price by traders but the company refused to, basing all its pricing on the index.

Fortescue prices each shipment based on index values over the five days before a vessel’s notice of readiness (NOR) is served at the discharge port.

Mr Power said some of the bigger traders did hedge booking for the steel mills and tried to offset it on the Dallian Commodity exchange (China’s primary commodity futures exchange) or the Singapore exchange.

“Some of the traders do deals with smaller steel mills, where they will sell them iron ore and buy the steel so the steel mill is basically a processor for the trader,” Mr Power said.

He applauded the push by former BHP Billiton chairman Marius Kloppers to scrap the iron ore benchmarking system, saying it was “a smart move because it took out all the dissymmetry of information out of the market”.

In 2010, Fortescue sounded the official death knell for the iron ore benchmark pricing system, switching to index-based pricing in line with Vale, Rio Tinto and BHP Billiton.

This year Fortescue signed up to a new Beijing-backed iron-ore trading platform. The platform is pitched against the Global Ore market, which is backed by BHP.