China, the largest buyer of iron ore, may allow annual contract talks with Rio Tinto Group to lapse, with some steelmakers accepting Rio’s temporary offer, Umetal Research Institute said.
Some of the nation’s largest mills have accepted a “provisional” 33 percent price cut offered by Rio, the world’s second-largest producer, said Shanghai-based analyst Hu Kai, declining to name the steelmakers. He said there may be no official announcement about the price agreement.
The China Iron and Steel Association, leading the price negotiations, sought a steeper discount than the 33 percent cut agreed by Japanese and Korean steelmakers after losses at its mills from the global recession. China on July 5 detained four Rio executives for allegedly stealing state secrets that it said harmed the nation’s economic interest and security.
“Rio is unlikely to budge on the price cuts because of the arrests as it won’t be consistent with its business practices,” Hu said. “The talks may end quietly as steelmakers accept the 33 percent as a provisional cut.”
Shan Shanghua, secretary general of the Chinese steel association, couldn’t be reached for comment. Nick Cobban, a spokesman for Rio in London, declined to comment.
Hebei Iron & Steel Group, China’s second-biggest mill by 2008 output, accepted the provisional cut while the talks were continuing, Tian Zhiping, Hebei’s vice president, said last week in an interview.
This year’s price talks between China and iron ore producers began in January, and passed the June 30 deadline without an agreement, becoming the longest-running in the 40- year history of setting annual prices for the steelmaking material. The 33 percent cut is the first drop in prices in seven years.
The contract price for the benchmark Rio product was settled at about $61 a metric ton, excluding freight costs, for Japanese and Korean mills. Shipping the ore to China’s Qingdao port from Western Australia would cost about $12.89, according to the Baltic Dry Index.
The price of iron ore for immediate delivery to China rose 5.5 percent to $87 a ton, including freight costs, for the week ended July 10, according to Metal Bulletin.
Vale SA, BHP Billiton Ltd. and Rio Tinto have cut spot sales to China to ensure supplies to customers in Europe, Japan and South Korea which have agreed to the contract prices, Umetal said last week, leading to higher cash prices in China.
“The steelmakers may swing back to buying from spot should the cash market fall in the future,” Umetal’s Hu said.
Chinese authorities last week said they had evidence that Rio employees, including Stern Hu, an Australian citizen and head of iron ore operations in China, stole state secrets. Rio workers had bribed employees at Chinese steelmakers, the China Business News reported last week, citing the Shanghai state security authority.
Source: Bloomberg
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