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Non-Tech : Commodities and Basic Materials

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From: Sam Citron	3/15/2006 10:11:36 AM
	of 21

Iron ore warning to China Mandi Zonneveldt 16mar06 TENSIONS between Australia and its third-largest trading partner, China, ratcheted up yesterday after new evidence of government interference in iron ore price negotiations. Federal Resources Minister Ian Macfarlane reacted with a firm statement warning China that there was no place for price caps in a commercial market. Late yesterday Bloomberg reported that Beijing was prepared to intervene in the negotiations about new contract prices. "The Chinese Government will pay close attention to the progress of iron ore price negotiations," the Beijing-based National Development and Reform Commission and China's trade ministry were reported as saying on a government website. "If there are unreasonable prices, which we regard as unacceptable, the Chinese Government will adopt necessary measures to protect the interests of the state and its companies from being damaged." BHP Billiton declined to comment last night. Rio Tinto spokesman Ian Head said the company had still not had official confirmation of Chinese government-imposed price caps on iron ore. Reports emerged last week of attempts by the Chinese government to keep a lid on iron ore prices by restricting imports above a certain price. The Chinese Embassy in Canberra denied that its government had imposed a cap. Trade Minister Mark Vaile said he had been assured the restrictions were a temporary measure designed to deal with capacity restraints at Chinese ports. China is Australia's largest customer for iron ore. It usurped Japan as the world's largest iron ore buyer in 2003. Mr Macfarlane said yesterday China was expected to behave in the same way as other countries in its dealings with Australian iron ore producers. "Australia has the opportunity to continue to supply China with iron ore cheaper than it can buy from most other places," he said. "So it would be in China's best interests that it continued a commercially negotiated arrangement with Australian exporters on the basis that it then allowed companies like BHP and Rio to make the investments to supply the growing demand for iron ore in China." Australian iron ore producers are yet to reach agreement with steel-makers on new contract prices, which are due to kick in on April 1. Prices rose 71.5 per cent last year. China's trade ministry is reported to have said last night that iron ore sellers had "taken advantage of their monopoly status in the iron ore trade to reap huge and unreasonable profits". BHP and Rio recently reported record profits off the back of surging commodities prices, with iron ore among the best performers. Analysts are forecasting a rise of between 10 and 20 per cent in the price of the key steel-making ingredient this year. BHP shares climbed 26c to $23.90. Rio fell 5c to $69.40. heraldsun.news.com.au

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