Chinese Fear Two Going Into One Big Ore Price Rise

A concise summing up of the recent increase in iron prices and the growth of ore sales by BHP Billiton and Rio Tinto to China can be found in tomorrow’s Sydney Morning Herald:

But when it comes to relations with customers in China, BHP has been far more publicly aggressive than Rio, which has tended to adhere to a speak-softly approach.

Three years ago Brazil’s Vale settled for a record 71.5 per cent increase in benchmark iron ore prices. Rio was quick to follow. But BHP – the smallest iron ore producer of the big three – held out for an additional “freight premium”, given the lower cost of shipping iron ore from Australia to China than from Brazil to China.

The Chinese were enraged by what they took as greediness. China’s ambassador to Australia lobbied Canberra to put pressure on BHP to drop its price demands. Within a few weeks BHP backed down, but the Chinese did not forget. Therefore, despite the repeated insistence of the BHP chief executive, Marius Kloppers, that its bid for Rio is meant to get customers “more product, more quickly”, in China there are deeply held suspicions that BHP is seeking to increase its pricing power.

February 8, 2008 4:23 PM
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