Play with the big boys, BHP boss tells China

PUBLISHED : Friday, 23 October, 2009, 12:00am
UPDATED : Friday, 23 October, 2009, 12:00am
 

With the 2010 iron ore talks due to begin next month between the world's leading iron ore exporters and China, there is no sign of a let-up in the acrimony that has marked negotiations this year.

The atmosphere was soured a bit more yesterday with Don Argus, the outgoing chairman of Anglo-Australian miner BHP Billiton, taking a parting shot at Beijing's anger at being unable to negotiate lower prices this year, remarking that China needed to 'play with the big boys'.

'I don't know what creates the hostility. I can remember in 2005, people were hostile when we increased the iron ore prices 70 per cent,' he told reporters after a luncheon speech.

Attempts to set a benchmark iron ore price collapsed earlier this year after talks between producers BHP and Rio Tinto and the China Iron and Steel Association (CISA) reached a stalemate.

CISA demanded a 45 per cent reduction on 2008-09 benchmark iron ore prices, although steel mills in Japan, South Korea and Taiwan had already agreed to a 33 per cent cut. CISA argued that since China was the Australian miners' biggest customer, it deserved a larger price reduction.

Hopes for a negotiated settlement were finally ended when China arrested Australian Stern Hu, the head of Rio's iron ore business in China, and three Chinese Rio employees, charging them with illegally obtaining commercial secrets.

But the Chinese authorities had already been infuriated when in June Rio dropped plans for a US$19 billion tie-up with state-owned metals conglomerate Aluminum Corp of China.

Argus yesterday reiterated remarks by Australian Trade Minister Simon Crean, saying China should play by international rules.

'If you're going to play in this game, then you've got to play with the big boys - and they know that,' Argus said.

China has also been concerned at a proposed US$116 billion tie-up between Rio and BHP to market up to 15 per cent of their joint production.

The plan was reportedly scrapped last week in deference to concerns from China and the European Union that the move would give the mining giants an unfair negotiating position.

But Argus said the plan was still on track and would revive China's concerns that the two would have too much power in setting prices.

Australia's ambassador to China, Geoff Raby, recently said Rio and BHP risked a serious backlash in China because of the joint venture.

China is the world's biggest market for seaborne iron ore shipments.

Observers are doubtful a benchmark price can be negotiated for next year in the present climate and say trade is likely to be done at spot market prices, which tend to be negotiated per boatload.

CISA head Shan Shanghua told an industry conference in Qingdao recently that in future, China would not accept prices negotiated by other countries and that all Chinese steel mills should adhere to a uniform price for iron ore.

Industry observers say Shan faces huge difficulties in enforcing this and in effect eliminating the spot market on which thousands of China's smaller steel mills depend.

Analysts say China will continue to face difficulties in asserting itself against the big Australian miners so long as demand for steel continues to grow.

They say the steel market is delicately poised at present but they expect a modest increase in demand next year.

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