Rio Tinto Hostility Escalates In China

Sydney Morning Herald

Friday March 21, 2008

John Garnaut Asia Economics Correspondent in Beijing

A CHINESE steel official has blasted Australian mining group Rio Tinto for being "dishonest" and "improper", as their row over billions of dollars of iron ore shipments edges closer to a trade war.

The accusations by Luo Bingsheng, executive vice chairman of the powerful China Iron & Steel Association (CISA), closely followed a more personal attack from one of his advisers, Wu Xichun.

"Their brains are bloated and their heads are full of water," said Mr Wu, apparently also referring to Rio Tinto.

The visit by the Prime Minister, Kevin Rudd, to Beijing on April 9 is now looming as a major diplomatic test as the Australian leader must pacify furious Chinese iron ore buyers while telling China's state-owned aluminium group, Chinalco, whether it can increase its 9 per cent stake in Rio Tinto, as it says it might do.

Chinese steel companies have already agreed to a price increase for iron ore of between 65 and 71 per cent with Brazilian miner Vale, on top of five years of huge price increases, but Rio Tinto and BHP Billiton are holding out for more.

In the case of Rio, tensions are compounded by Chinese accusations that it has failed to honour long-term contractual obligations in order to supply the iron ore spot market, where prices are more than double.

The Herald yesterday asked Mr Luo why China had blackballed Rio Tinto and BHP Billiton spot market imports, first reported in Tuesday's Herald. A number of Australian iron ore shiploads remain stranded in Chinese ports.

Mr Luo appeared to single out Rio Tinto for the full force of his fury.

"The practice of this company is to stop supplying its long-term contractual obligations in order to supply the spot market," he said from the panel of a major Beijing steel conference, through the conference's simultaneous translator.

"This is improper ... The dishonesty of this company is the reason we have responded and shown our contempt," he said.

The phrase that was translated as dishonesty, "bu shou xin", can also translate as untrustworthy.

Mr Luo's comments generated rousing applause from the floor of the conference at Beijing's Capital Hotel.

Mr Luo then said his association did not have the power to enforce an embargo by controlling import licenses.

An Australian government adviser, who has been following the Chinese spot market embargo since January, said Mr Luo's comments had taken the dispute to a new level.

"That's a very high level of brinkmanship and it would indicate they are going to take us right on," the official said.

Until now, many Australian officials have been anxious to play down the dispute before Mr Rudd's arrival in Beijing on April 9. They have blamed industry associations acting independently of government departments, such as the Ministry of Commerce.

Rio Tinto and BHP Billiton have not clarified how long the embargo has been in place or how many shiploads of iron ore have been affected.

But a newsletter, Metals Bulletin, published on February 1, suggests there has been a systematic industry embargo against Rio Tinto since January.

The article quoted a CISA official as saying: "We asked the domestic steelworks at a recent meeting not to purchase iron ore from Rio, but it is not an order or an obligation."

The article quoted the unnamed CISA official as blaming Rio for failing to honour long-term contracts.

"That is why we think we need to do something to boycott it from the spot market," the unnamed official was quoted in the article as saying. It also quoted iron ore traders who attended a January 29 meeting held by the China Chamber of Commerce of Metals Minerals & Chemicals Importers & Exporters (CCCMC), which has the power to give import licences.

"It is not an order, but it is as good as one, because CISA and CCCMC are top industrial associations with a big say in the issuing of iron ore import licences each year. Disobedience now may lead to the loss of licence next year," the Metals Bulletin quoted an iron ore trader as saying.

The chief executive of Rio Tinto, Tom Albanese, has scheduled a press conference in Beijing tomorrow.

© 2008 Sydney Morning Herald

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