The world's biggest iron ore producers have opened negotiations aimed at setting the annual price of the commodity, according to reports from China yesterday.
Iron ore prices are determined every 12 months and are generally settled when one of the leading producers – such as BHP Billiton, Rio Tinto or Vale of Brazil – agree a price with an individual steel mill, usually in China.
According to the China Times newspaper, the talks have begun in Singapore. Both BHP Billiton and Rio Tinto declined to confirm the story and added that they never commented on iron ore prices. The companies have recently agreed a joint iron ore mining venture in Western Australia but are keeping their marketing efforts separate, including talks about iron ore prices.
This year's negotiations are being watched especially closely after the big producers and major Chinese steel mills failed to reach an agreement last year. This forced mill owners to buy iron ore in the spot market, which in turn gave producers a fillip when commodity prices rose as economic news improved.
Iron ore is now trading at more than $120 per tonne, having climbed from $60 last March. Analysts expect the price to carry on rising as the global recovery gathers pace. China's steel mills will therefore be eager to strike an early deal. It is not known if the China Iron and Steel Association (CISA) will play a role in this year's talks. The CISA was criticised 12 months ago when it failed to persuade the miners to agree to lower their prices for iron ore.
Rio Tinto did eventually agree a fee with a Japanese mill but this was not recognised by the wider market and, crucially, not by the Chinese.
This year's talks come against the backdrop of the arrests in China of four Rio Tinto employees – including its Shanghai-based Australian executive Stern Hu – for alleged espionage and bribery. The company, which is due to report its full-year results next week, has steadfastly refused to comment on the case but has moved most of its China-based employees to its Singapore office.
The four workers were initially held on suspicion of stealing state secrets, which carries the death penalty. The charges were later downgraded to illegally obtaining commercial secrets and bribery – for which the maximum penalty is seven years in prison. The arrests caused a diplomatic spat between Australia, where Rio Tinto is also listed, and the Chinese authorities.
In a separate move yesterday, Rio Tinto sold its Alcan packaging business to Amcor for $1.95bn.Reuse content