News.mining.com reported that in a common Chinese bargaining tactic staged daily at markets and shopping malls, buyers usually pretend they are walking away if sellers refuse to offer a better price and the same strategy is now being used by Chinese steel mills to negotiate with tough Australian iron ore miners.
The China Daily quoting a shipping research house and a port operator reported that Chinese steel mills at an impasse over ore prices with Australian suppliers plan to turn to Brazilian suppliers instead for the iron ore imports that feed economic growth in China.
According to shipping data provider ASXMarine, spot iron ore vessel bookings from Brazil to China surged to a record 39 in July after the Chinese government detained four Rio Tinto employees up from 24 bookings in the previous month. By contrast, vessel bookings from Australia's main iron ore ports to China dropped to 31 in July, the lowest level since February and down from the 40 bookings in June.
Iron ore price negotiations and shipments between Anglo-Australian miners Rio Tinto and BHP Billiton have been almost frozen since four Rio Tinto Shanghai-based staff were detained by China’s Public Security Bureau in early July on charges of bribing Chinese steelmakers to obtain state secrets about sensitive price information during the annual iron ore contract price negotiations. On a diplomatic level, there is also rising tension between Beijing and Canberra, with each accusing the other of unfair treatment.
Mr Zang Dongsheng deputy GM of Rizhao Port Group told China Daily that some of his customers have cut their shipping orders from Australia and booked more from Brazil. Rizhao Port Group is China's largest iron ore port operator, and handles a fifth of the country's iron ore deliveries. The company however could not provide the exact figures about previous shipments from Brazil and Australia before September.
Official figures from China Ministry of Transport showed that China's main ports received 56.5 million tonnes of iron ore in July up by 35% from last year. In the H1 of this year iron ore imports surged 29.3% on an annual basis to 297 million tonnes.
Amid unprecedented strong demand for iron ore for China’s rapid development, Chinese steel mills this year refused to follow the industry practice of agreeing to a long-term contracts for iron ore at prevailing industry prices with the three major iron ore producers, including Rio Tinto, BHP Billiton and Brazil’s Vale.
The situation became especially tense after Rio Tinto turned down an offer from Chinalco to acquire its major mining assets and to subscribe its convertible bonds. Rio Tinto instead turned back to its rival BHP to merge their iron ore assets in Western Australia.
Chinese steel mills led by China Iron and Steel Association in the bilateral negotiation with Australian miners refused in May to accept the 33% iron ore price cut offered by miners and walked away from the discussion table. Japanese and Korean steel firms agreed to the 33% price reduction and signed long term contracts. Since then, China has been stuck buying ore at the higher spot prices as tensions simmer between China and Australia.
Mr Xianfang Ren an analyst with IHS Global Insight said in a research reported released last week that the future iron ore price bargaining between Chinese buyers and Australian sellers is expected to turn even tougher. He said that China’s dramatic arrests of four of Rio Tinto employees in early July was just a curtain raiser for China’s decision to toughen up its stance in iron ore pricing.
Mr Ren pointed to signs that the Chinese government, with its huge volume of ore purchases was determined to seek greater bargaining power in iron ore pricing for the sake of Chinese development as early as the end of 2008, when the Ministry of Commerce, which oversees the iron ore talks, shocked the market by handing over the power of iron ore negotiation from China’s largest steel company Baosteel, to China Iron and Steel Association a quasi government-run entity.
(Sourced from News.mining.com)
