Rio faces iron ore boycott by Chinese steelmakers

Rio Tinto’s negotiations with China Iron and Steel Association (CISA) are at a critical stage.

Rio says it is confident that it will successfully complete the annual contract negotiations in the next six weeks but meanwhile, Chinese steelmakers are calling for a boycott of its spot sales of iron ore.

Problems have arisen because, last year Rio made use of flexibility clauses in its contracts, that allowed the group to charge spot market prices for iron ore, at around 10% above the prices set in its contracts.

In addition, CISA calculates that Rio has only fulfilled 86.2% of its long-term contracted supply with Chinese firms in 2007. The figures compared with 88.2% in 2006.

Sam Walsh, who head’s Rio’s iron ore operations, has pointed out iron ore spot prices in China are around $US180 to $US190 a tonne, over double the 2007-08 contract price.

He is keen to fulfil his responsibility to shareholders by preserving the group’s right to sell in the spot market while continuing to negotiate long-term supply contracts.

While a joint action by the Chinese steel industry to boycott Rio’s spot sales could be deeply damaging to the company it would also put China in breach of World Trade rules.