Rio
Tinto and BHP Billiton have asked their Chinese steelmaker
customers to accept the largest ever increase in iron ore prices
or risk the interruption of supplies from Australia.
Traders
and industry officials said the mining companies have demanded price
increases for their annual iron ore contracts in excess of the record
71.5 per cent rise of 2005 and were fighting for increases of 85-95
per cent.
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fuels pipeline makers - Apr-13Rio and BHP have warned their Chinese
clients some annual contracts will expire next Monday and they would
cease supply under the old terms. They have told them the ore would
instead be sold into the spot market, where prices are higher.
The
bold step indicates that the heated annual price negotiations, already
well beyond their traditional conclusion date, are set to move into
a hostile phase.
Analysts
said most of Rio’s iron ore contracts would expire on June 30. However,
some BHP contracts do not expire until September, leaving the latter
time to negotiate and allowing Rio to take the lead in the discussions.
Macquarie,
the Australian bank, said Rio was committed to securing a price
in excess of the 85-95 per cent the market is expecting. “That stance
suggests investors should be prepared for an extended and potentially
hostile conclusion to the negotiations,” it said in a report.
Rio
and BHP are demanding a larger price increase than Brazil’s Vale
because their proximity to China reduces shipping costs.
Traders
said that freight costs from Australia to China collapsed last week
by 37 per cent as at least one of the mining companies stopped booking
some vessels for July to ship under the old contracts. That move
signalled their intention to move shipments into the spot market
if the negotiations failed.
If
Rio and BHP carry out their threat of diverting shipments into the
spot market, analysts said the steelmakers would be likely to retaliate
by stopping buying for as long as possible. Although China has record
high iron ore inventories, the country depended heavily on imports,
they said, and it would not be long before it had to cave in and
buy into the spot market.
Morgan
Stanley said in a report the ore market was under “unprecedented”
pricing developments and . . . “remains very tight and in significant
deficit”.
Rio
and BHP declined to comment.