China's steel industry has been hit with sharply higher spot prices for iron ore as mills scramble for imports ahead of expected import curbs linked to an inquiry involving spying charges against Rio Tinto, the Anglo-Australian miner.
Steel Business Briefing, the consultancy in Shanghai, said this week's surge in Indian iron ore prices, which have risen by as much as $8 a tonne to almost $90 a tonne, was triggered by supply constraints as Australian miners halt spot shipments to China, while Chinese mills rush to buy amid reports that as many as 20 iron ore import licences will be cancelled.
“Some traders point to congestion at Indian ports for the increase. But most believe the key reason is that Rio and BHP Billiton have stopped putting spot shipments up for bid, with volume falling off since the start of July,” the consultancy wrote. It quoted one Shanghai-based trader as saying: “There's almost nothing coming from Australia at the moment.”
Mills are increasingly nervous about what Beijing says is an effort to crack down on corruption in the steel industry.
Chinese officials last week detained four Rio employees, including one Australian, accusing them of stealing state secrets. A government-backed website alleged the four had colluded with steel industry officials, buying information about Chinese steel demand that gave Rio an advantage in annual iron ore contract pricing negotiations with steelmakers. The negotiations remain deadlocked.
Rio Tinto has said it is not aware of any evidence to support the allegations against Stern Hu, its iron ore marketing chief in China, and its other employees. The company is liaising with the Australian government which is leading efforts to assist Mr Hu and three associates who are Chinese citizens.
Analysts suggested that the probe appeared to be driven by the desire of the China Iron and Steel Association to crack down on speculative trading in China and gain control over pricing.
“China is regulating the ore and steel industries and will reduce the number of companies holding ore trading licences”, said Jiang Qian, a market analyst in Shenzhen.
But at least in the short term, the probe may have backfired, driving spot prices above the current benchmark level and further undermining China's argument that it should win a 40-45 per cent cut in contract prices for 2009-2010 contracts.
