Rio Tinto Employees Held in China Amid Stalled Iron Ore Talks
By Jesse Riseborough and Brett Foley
July 8 (Bloomberg) -- Rio Tinto Group, the world’s second- biggest iron ore exporter, has four employees detained in China amid a deadlock in annual price talks for the ore.
Rio hasn’t had contact with the workers from the Shanghai office since they were detained July 5, spokesman Nick Cobban said yesterday by phone from London. The Sydney Morning Herald identified one of them as Stern Hu, an Australian passport holder and head of Rio’s iron ore operations in China.
Chinese steel mills are seeking a bigger price cut than the 33 percent agreed on in May between London-based Rio and Japanese, Korean and Taiwan producers, Hebei Iron & Steel Group Vice President Tian Zhiping said on July 2. Rio was criticized in China after it rejected a planned $19.5 billion investment by Aluminum Corp. of China in favor of a share sale and an iron ore joint venture with BHP Billiton Ltd.
China is “playing a bit of a dangerous game,” Ric Ronge, who helps manage the equivalent of $1 billion at Pengana Capital Ltd. in Melbourne, said today. “The fact of the matter is China needs the material and Rio needs to sell the material.”
The reasons for the detention are unclear, according to an internal e-mail obtained by Bloomberg sent yesterday by Sam Walsh, the chief executive of Rio’s iron ore operations.
Australian officials are seeking “urgent access” to one of the detainees, Miles Armitage, a spokesman for Australia’s Department of Foreign Affairs and Trade said in an e-mailed statement. Embassy officials have been in contact with the man’s family, Armitage said. The other three people are Chinese passport holders, according to the Herald.
Rio dropped 1.4 percent to A$46.69 at 11:31 a.m. in Sydney trading, compared with a 1.1 percent drop in the benchmark S&P/ASX 200 Index.
Price Talks
London-based Rio is among iron ore producers negotiating contracts with China’s steel industry, the biggest buyer of the raw material. Calls to the China Iron & Steel Association in Beijing weren’t immediately returned.
“We intend to co-operate fully with any investigation the Chinese authorities may wish to undertake and have sought clarification on what has occurred,” Walsh said in e-mail. “We are concerned about our people’s wellbeing and are doing everything we can to help them and support their families.”
Rio said last month that some iron ore supply contracts may revert to so-called spot pricing, or market rates for immediate delivery, from June 30 if there’s no agreement contracts. Fixed- price iron ore contracts cover the fiscal year starting April 1. The decline in contract prices is the first in seven years.
Bad Development
“The iron ore negotiations with the Chinese have taken a new direction,” Charlie Aitken, executive director of Southern Cross Equities Ltd., said today in an e-mailed note to clients. “This arrest, or whatever it is, of Rio employees is a very bad development however you look at it.”
Rio’s decision to scrap the deal with state-owned Aluminum Corp., the company’s largest shareholder, after commodity prices improved was an act of “kicking down the ladder,” according to a commentary in state-run Xinhua News Agency.
BHP Billiton spokesman Peter Ogden declined to comment. Fernando Thompson, a Rio de Janeiro-based spokesman for Brazil’s Vale SA, the world’s largest iron ore producer, also declined to comment.
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