China turns screws on iron ore giants By Felicity Williams The Daily Telegraph January 02, 2009 03:46am
JUST days into the new year the signs from China for our battered big miners are ominous. According to reports out of Shanghai, the Chinese Government is seeking tighter control over iron ore imports to help drive down prices for the steel-making ingredient.
That's bad news for the world's biggest iron ore producers - Rio Tinto, BHP Billiton and Brazil's Vale - as it will give Chinese steel giant Baosteel much greater muscle in the current round of iron ore price talks.
Substantially reduced iron ore prices will put even more pressure on BHP and Rio, as they grapple with dramatic price falls across all major commodities.
Rio is especially vulnerable as it struggles with $US38.9 billion ($A55.3 billion) in debts in the face of the global financial crisis.
Annual iron ore contract price negotiations are shrouded in mystery but are believed to have kicked off in the weeks before Christmas.
Beijing reportedly wants closer monitoring of where iron ore shipments end up after their arrival in China's ports.
And it is looking at clamping down on the practice among import agents of making profits by stockpiling iron ore as a punt on future higher prices.
The new regulatory regime could hurt BHP and Rio as it will potentially reduce shipments of iron ore - Australia's second-biggest commodity export after coking coal - into China.
Iron ore demand has already softened dramatically in recent months as the global economic slowdown pulls in steel-intensive industries such as construction activity and car-makers. Global construction of crude steel experienced one of its biggest reversals in November, tumbling nearly 20 per cent to just 59 million tonnes when compared with the same month of the previous year.
In another bad omen China's first batch of coking coal imports for 2009 are nearly half the levels they were a year ago. China's Ministry of Commerce has decided on an initial quota of 5.78 million tonnes - down from 9.62 million tonnes at the start of last year.
That suggests Australia's biggest trading partner is shifting to greater use of domestically produced coking coal rather than imported product as economic times get tougher.
And it could not come at a worse time for coal producers already starting to suffer after a sharp drop in prices for the energy source.
Queensland's Macarthur Coal last month slashed its profit guidance, suspended dividends and laid off workers after chairman Keith de Lacy warned shareholders that it was impossible to predict when coal prices would improve.
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