China Calls For Boycott Of Australian And Brazilian Iron Ore

The state-owned China Iron and Steel Association has asked domestic steel firms and

traders not to import iron ore from Australias Rio Tinto and BHP Billiton and Brazils Vale for two months.

The Chinese industrial group is urging domestic steel companies to stop buying iron ore from the worlds top three miners in protest over an alleged price monopoly, state media said on Monday.

China has 75 million tons of iron ore reserves and production of the resource by Chinese mines was up by 18 percent year-on-year during the first two months of 2010.

At present our steel enterprises have ample supplies of iron ore to ensure normal steel production for two months, the report quoted association head Shan Shanghua as saying.

The association called for the boycott on Friday as the most effective means to fight the monopolistic behavior of the three iron ore giants.

Australian Trade Minister Simon Crean responded by calling on Beijing not to interfere in the market.

Youve got to let the market determine the price. You cant be issuing directives in terms of restricting supply, he told ABC Radio. Crean said a boycott was unlikely because demand for iron ore was so high from rapidly industrializing China.

Asian steelmakers like Japans Nippon Steel and South Koreas Posco have already accepted massive hikes in iron ore prices this year of up to 90 percent. Agreements by the Asian steelmakers in the iron ore talks have previously served as a benchmark in global negotiations.

As the worlds largest iron ore consumer, the interests of Chinese steel mills should be reflected in the negotiations, commerce ministry spokesman Yao Jian told reporters. For the first time in decades, Chinas steel industry and the mining companies failed in 2009 to hammer out a deal on prices.

The situation demonstrates the difficulty some Chinese SOEs still have when having to deal with market prices determined by factors out of their control, said Chris Devonshire-Ellis of Dezan Shira & Associates. Previously able to obtain prices fixed by political connections with Beijing, they have found that in a tougher commercial global environment the same rules do not apply. If demand is high, suppliers raise their prices. Its normal and China will just have to accept this. Everyone else has, and Chinas SOEs are going to have to follow.

by: Dezan Shira & Associates

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