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BHP calls for transparency in iron ore pricing

A man works at a steel plant in Taiyuan, Shanxi Province yesterday. Upstart Australian miner Fortescue Metals Group broke ranks to forge a slightly cheaper iron ore price with Chinese steel mills in exchange for up to US$6 billion in funding. PHOTO: REUTERS

A senior executive at mining company BHP Billiton says the way iron ore is priced should be more transparent, and that such a reform could help prevent situations like one that led to four Rio Tinto employees being arrested in China on commercial spying charges.

Alex Vanselow, chief financial officer of the world’s largest mining company, said BHP Billiton had been pushing for a market-based pricing mechanism for iron ore.

“Nobody asks us what the price of copper is every day or what the price of copper is expected to be 12 months from now,” Vanselow told Australian Broadcasting Corp television on Sunday.

“People just pull out their screens, look at the curve and they have a good idea. It should be no different for iron ore,” he said.

Iron ore prices are set in annual, secret talks between major suppliers, such as BHP Billiton and Rio Tinto, and customers such as China’s state-owned steelmakers. Prices of most other minerals, such as copper, are set by the market and fluctuate daily.

Negotiations on iron ore have proved contentious in recent years as demand soared, particularly in China, which is now seeking ways to win big price cuts.

China last week formally arrested four employees of Rio Tinto Ltd for infringing trade secrets and bribery, in a case that has strained relations with Australia because one of the suspects, Stern Hu (胡士泰), is an Australian citizen.

Hu, who headed Rio Tinto’s iron ore business in China, and his colleagues are accused of obtaining commercial secrets about China’s steel and iron industries through improper means.

They were detained on July 5, at a time when Rio Tinto was in contentious price setting negotiations with Chinese mills.

Vanselow said he could not comment on the circumstances of Hu’s case, “but I’m saying transparent prices is for everybody to benefit and creates a situation where this type of question wouldn’t even be possible.”

Meanwhile, China announced an iron ore supply contract yesterday with a smaller Australian miner in an apparent effort to prod global producers to accept lower prices in deadlocked contract talks.

Australia’s Fortescue Metals Group will sell China iron ore for US$0.94 per dry tonne, the state-sanctioned China Iron Steel Association announced.

That is below the price of US$0.97 agreed to with Japanese and South Korean mills for this year’s supplies and that major suppliers wanted Chinese mills to accept.

The Chinese association is deadlocked in price talks with the three major suppliers of global iron ore — Anglo-Australian miners Rio Tinto Ltd and BHP Billiton Ltd and Brazil’s Vale SA.

Beijing is pressing for deep reductions following two years of price hikes totaling more than 100 percent. A Cabinet minister said last week that China wanted more control over global prices given its status as the world’s largest iron ore consumer.

“The deal breaks the market impasse that had enveloped the Chinese iron ore industry and created uncertainty and risk,” Fortescue said in a statement issued in Australia.

Fortescue said the deal includes a pledge by the Chinese association to give the company priority in negotiating next year’s prices if annual talks are held. That could erode the influence of Rio, BHP and Vale in setting prices.

Employees who answered the phone at the association’s Beijing headquarters refused to give more details or transfer a reporter’s call to the group’s spokesman.
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