The China iron ore negotiations get odder and odder.
Four Rio Tinto executives are detained by police, with one of those an Australian.
The company confirms the news, but for much of yesterday there was no confirmation from Chinese police.
Then there was, with claims that at least one was engaged in espionage with state secrets on computers.
(In China I suppose if you had the accounts of listed Chinese companies that could be construed to be a state secret seeing all are controlled by the Government).
But to make things even more puzzling, around the same time as Bloomberg reported this
"China has agreed to a 33 percent cut in iron ore prices from suppliers, the China Business News Web site reported, citing unidentified sources with knowledge of the talks.
"The price cut is effective from April through to October, said the report.
"China also agreed to conduct negotiations on a biannual basis with talks for the second half now underway, it said."
"China agreed to a cut in both Pilbara Blend iron ore fines and Yandi fines of 33 percent to 97 U.S. cents per dry metric ton unit, and a reduction in Pilbara Blend lumps by 44 percent to 112 U.S. cents per dry metric ton unit, said the report. The cuts are effective from April through to October, the report said."
China’s Iron and Steel Association rejected the 33% price cut agreed in May between Rio and Japanese, then Korean and Taiwan producers, and has been seeking a cut of 45%.
China also agreed to conduct negotiations on a biannual basis with talks for the second half now underway, the newspaper said.
The raid on the Shanghai offices of Rio Tinto has created the major concern.
One executive, named by local media as Stern Hu, has an Australian passport and has reportedly been held in Shanghai since Sunday.
"The Australian embassy in Beijing and our consulate-general in Shanghai have confirmed with the Chinese authorities that an Australian employee of Rio Tinto Australia has been detained," a foreign affairs spokeswoman said in a statement yesterday.
"We are seeking urgent consular access (and are) not yet able to comment on the reason for his detention," she said, adding Australian officials were in contact with Hu’s family and his employer.
Rio had announced that four male staff had been detained in Shanghai but said the reason remained "unclear."
Reports said the other three men were Chinese passport-holders and local employees of Rio.
"It appears four employees from Rio Tinto’s Shanghai office have been detained for questioning by the Chinese authorities in Shanghai," Rio said in a statement from London.
"The reasons for these actions are unclear. Rio Tinto intends to co-operate fully with any investigation the Chinese authorities may wish to undertake and has sought clarification on what has occurred."
Rio frustrated China last month when it snubbed a $US19.5 billion deal from the state-owned Chinalco, opting for a $US15 billion rights issue and joint venture with BHP Billiton instead.
Chinalco supported that issue, putting in $US1.5 billion last week to maintain its stake as the biggest shareholder. That decision had to been approved at the highest level of the Government.
Rio and BHP want the Chinese steel mills to settle on the same basis as the Japanese mills did: a general cut of around 37% (45% for lump ore, the favoured ore type of the Japanese and non-Chinese mills).
China wants more, especially for fines, its favoured ore type: up to the 45% cut for lump ore).
The Chinese steel association has been controlling the talks and has refused to budge from its demands for a deal better than the Japanese won.
The Chinese argue that seeing they are the biggest buyers in the world, they should have the best deal.
So BHP Billiton and Rio have told the Chinese that they will sell their iron ore into the spot market and they can buy it there.
However spot prices are currently around $US14 a tonne above the average 2009 price for iron ore in the Japanese mills contracts of $US64 a tonne.
It seems some media in China claim the Australian companies have threatened to withhold iron ore from the market.
The Chinese mills have also threatened to cut their purchases from the Australian companies.
Such a rapid escalation of a commercial dispute to one involving the Chinese Government and police is dramatic and needs more than the Australian Foreign Affairs Department ‘doing’ something.
The Prime Minister, who has made a case for close ties with China, has indicated at other times that while he respects China, he is also wary of the country’s authoritarian ways.
The man he could have talked to directly at the G8 Summit, Chinese President Hu Jintao is on his way home from Italy because of the rising level of unrest in China’s Xinjiang Uygur Autonomous Region (Source).
That dispute has increased tensions in China and means the police intervention in the Rio case should be taken more seriously than at other times.
The Rio situation isn’t as serious as that, but in terms of the Australia-China business relationship, it has suddenly worsened considerably because the Chinese Government-owned steel mills can’t get their own way.
Rio shares fell to a low yesterday of $46.44, but then rose strongly to finish up 85 cents at $48.20 on the news report from Bloomberg.
