Rio Tinto Ltd. (RIO.AU) iron ore chief executive Sam Walsh said
Friday the company isn't in negotiations with China over benchmark
iron ore prices, leaving annual contracted prices for Chinese steel
mills up in the air.
Despite the suspended talks - coming amid strained relations
between Australia and China over the arrest of Rio executive Stern
Hu - China is still buying Rio's contractual ore shipments on a
"provisional" pricing basis, Walsh told reporters in Perth.
The provisional value is based on Rio's 33% benchmark price cut
agreed to earlier this year by its Japanese customers, suggesting
that China is struggling to gain traction in its efforts to secure
a steeper price discount from Australian suppliers.
Rio Tinto is "not negotiating" contract iron ore prices with
China "at this point in time", Walsh said.
Asked whether China iron ore talks will resume at any point,
Walsh said, "I expect that they will, but I don't know when."
"Remember that we have our negotiators detained," he said,
referring to the recent imprisonment of Rio's Chinese iron ore
team, which included Australian citizen Stern Hu.
A Rio Tinto spokesman later told Dow Jones Newswires that the
company’s iron ore talks with China have been at an "impasse" since
Rio struck its deal with Japan in late May - well before the arrest
of Hu in early July.
There "may have been some discussions (with China)" since the
Japanese deal, but "certainly nothing of great significance", he
said.
The spokesman said that Hu, head of Rio Tinto's (RTP) iron ore
operations in China, plays a senior role in Rio's overall marketing
effort in the country, but isn't the lead price negotiator.
Singapore-based Will Malaney, president of Rio Tinto Iron, Asia,
is the company's lead negotiator in the region, the spokesman
said.
Walsh said Rio is shipping the majority of its iron ore to China
on a "provisional" price, based on Rio's settlement in late May
with Japan.
China, the world's biggest importer of iron ore, has refused to
recognize that settlement, arguing for a steeper discount.
Last month, China and Australia's Fortescue Metals Group Ltd.
(FMG.AU) announced a supply deal priced 3% below the Japanese
benchmark, but analysts dismissed that arrangement as a face saver
for China that was unlikely to impact the wider industry.
RBS analyst Warren Edney said Chinese consumers "seem happy at
the moment to take iron ore based on the provisional pricing, which
appears to be as close as possible to the Asian benchmark
price".
"China still wants iron ore, and the material they have been
buying on a provisionally priced basis, from Australia and Brazil,
has been cheaper than material they’ve been able to purchase from
India on a spot basis," Edney told Dow Jones Newswires.
Analysts estimate that Australian benchmark ore, landed in
China, is priced at roughly US$70 a metric ton, versus current
Chinese spot prices of around US$80/ton.
Walsh said China's arrest in July of Stern Hu and his three Rio
colleagues has moved into the legal stage.
"We are respecting the Chinese judicial system and we are
pleased that our four employees have been able to hire top-notch
lawyers who will represent them," Walsh said. The lawyers visited
the employees recently, he said.
He said a regular consular visit by Australian officials to
Stern Hu is due "shortly".
Hu was arrested in Shanghai in July and stands accused of
industrial espionage and bribery during fraught iron ore
negotiations.
Walsh said the company's proposed production joint venture with
BHP Billiton Ltd. (BHP) in Western Australia won't reduce
competition in the global iron ore market.
"We have heard concerns that this joint venture will have a
negative impact on competition," Walsh said in a speech to a
Committee for Economic Development of Australia function.
"My simple response is to say no, it will not reduce
competition."
Rio and BHP are committed to have the joint venture in place by
the middle of 2010, he said.
Walsh said iron ore mining companies need to be cautious about
the recent price rally, given that spot prices have eased to around
US$80/ton from more than US$100/ton early last month.
The price fall mirrors recent declines in Chinese steel prices,
Walsh said.
Despite his caution, Walsh said that economic stimulus
interventions by many governments have helped the steel and iron
ore markets increase production.
Almost all of the Group of 20 countries agreed to some type of
fiscal stimulus plan totaling some US$690 billion for 2009, he
said.
-By Stephen Bell, contributing to Dow Jones Newswires;
61-8-9244-4243;sgbell@bigpond.com