warning, page-34

I would suggest that the sell of is due to drop in base metal prices and oil not iron ore where set contracts for supply are in place. Spot component for BHP/RIO is approx 10%


Beijing denies iron ore talks meddling
By Andrew Trounson
March 20, 2008 12:00am

BEIJING has denied it is interfering in fraught iron ore price negotiations, assuring Canberra that delays to Australian spot imports are not part of any state-backed plan to put pressure on recalcitrant miners BHP Billiton and Rio Tinto.

Australia's ambassador to China, Geoff Raby, yesterday said there was no place for Chinese government interference in the iron ore price talks, but that at this stage there was no evidence of any "systematic" or government-backed campaign to ban Australian spot imports.

Instead, he blamed import licence delays on Chinese steel industry groups seeking to influence the price talks in which BHP and Rio are pushing for higher annual prices than the massive 65-71 per cent increase agreed by traditional price-setter Vale of Brazil.

"We have sought advice and guidance from the Chinese Government on what is going on and been given assurances," Dr Raby told The Australian after addressing a meeting of the Australia China Business Council.

"We have no evidence that there is direct government guidance on this.

"If there is evidence of direct government involvement, we will raise it with the Chinese Government and point out that these commercial transactions should be left in the hands of business."

Three iron ore spot cargoes from Australia have been stranded after being unloaded at Xingang port as the China Chamber of Commerce of Metal, Mineral, Chemicals and the China Iron and Steel Association delayed the issuing of export licences.

But Dr Raby said he did not think there was any systematic attempt to block Australian spot cargoes.

"But it doesn't mean that various industry groups representing different importers are not, for their own ends, making statements that they hope will influence behaviour," Dr Raby said.

Nevertheless, Merrill Lynch noted yesterday that the delays followed stock building by the Chinese, with port stocks now at 62 million tonnes, or some 40 per cent more than usual.

While the stock-build may partly be due to winter storms delaying rail deliveries from port, Merrill said "it appears a stock-backed trump card is played by blocking spot sales".

The Government queried Beijing on the import delays at the urging of the miners. Both BHP and Rio are declining to comment on the price talks that appear to be getting increasingly bitter in the countdown to the new contract year starting on April 1.

While talks have often gone past the start date with prices backdated, there is speculation that, come the end of June, if there is no agreement the Australians may be able to void some contracts and divert more cargoes on to the spot market.

While most iron ore is sold under agreed annual benchmark prices, both BHP and Rio are planning to put more of their growth tonnes on to China's spot market, where prices are about $US200 a tonne, about $US80 above the Australian landed contract prices -- even after the 65-71 per cent settlement by Brazilian giant Vale.

Rio has been particularly aggressive, using clauses in its current contracts that allow it to divert as much as 10 per cent of its contract sales on to the higher-priced spot market.

Both BHP and Rio are demanding a higher settlement price, plus a freight premium to reflect the cheaper landed cost of Australian ore compared with more distant Brazil.

Merrill is tipping the Australians to win a price rise of more than 71 per cent from China, but they believe the Chinese will successfully resist moves to secure a freight premium.