Rio Tinto-China spat to help exporters

Even as spot prices have jumped to $220 per tonne, Rio Tinto maintained that it has not reduced ore exports to China.

"Indian exporters are shipping around 100 million tonnes of ore to China every year, and most of it finds its way to the spot market. They are likely to gain from this development," said Russell Scrimshaw, executive director of Fortescue Metals Group, in Perth.

 

This was echoed by Rio Tinto officials, who, however, pointed out that the company has not reduced shipments to China following the stand-off with Chinese steel makers.

"We have our supply commitments to keep and maintaining our pace of shipment," said Gervase Greene, manager (media and communications), Rio Tinto. "We are not concerned what happens to the material after it reaches Chinese shores," he added.

On an average, about 3 cape size vessels loaded with ore sails for China from ports in Australia every day. It may be noted the China Iron and Steel Association (CISA) had given a call to its member mills to boycott Rio Tinto iron ore in the spot market.

The association has accused Rio of failing to honour its long term supply commitments and diverting supplies to the spot market to gain from high prices ruling there. Its officials, however, denied the charge that they have kept the commitment for long term supply with Chinese steel producers and their sale in the spot market was within the agreed limits.

Interestingly, the stand-off coincided with the annual schedule of negotiations for fixing ore prices for long term contracts between Chinese steel makers and global resource companies.

During negotiations, Australian resource majors are said to have pitched for a price hike in excess of 71 per cent, citing advantages Chinese firms enjoy in freight charges.

The correspondent's visit to Perth has been sponsored by the Australian govt.

Currently, freight charges to bring ore from Brazil work out to over $100 a tonne, whereas it is only $35 a tonne in case of Australian ore.

Last year, the company had signed deal with the Chinese firms raising the iron ore prices by 8.5 per cent, which it claims is less than the inflation rate faced by the mining industry over this period.

China imports nearly 500 million tonne of ore, about half of its need, every year. Meanwhile, the problem between Chinese steel makers and Rio Tinto has provided opportunities for other players including Indian exporters and Rio's arch rival BHP.

BHP Billiton is reported to have contracted 17 cape size vessels to carry ore to China even as Ian Ashby, president of the company, maintained that they were selling excess ore produced above their long term contractual requirements in the spot market.

Meanwhile, the brisk booking of cape size vessels to carry iron ore to China and shortage of carriers have pushed up shipping rates by 10 per cent last week. "Higher freight charges have put the Indian exporters at an advantageous position as they are closer to China," pointed out a miner.