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The next phase...

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Forget about Stern Hu, he is just a small potato... this is what will raise the heat. Wait for it.

Keep those dates and timeline in your diary. Meantime, don't expect the iron ore market to be active. Over there, the Chinese steel sector/market will be going through a shake up and shake out, with CISA banging heads to take down every rogue and delinquent traders... by the time they finished, they would be ready for next round of negotiation. And by that time, the spot market would be quite "dead" too - when no one dares to step out of line.

What left will be the "going broke" scenario - the contract negotiation between the biggest supplier vs the biggest consumer... with serious consequences. If there's a dead lock like this year, attrition will be the name of the game; by then, just use your imagination and visualise what it would mean to China, the consumer and Australia the producer.

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  1. haunting's Avatar
    Chinese business in chains

    ** it's all over the place, everyone is feeling "hot" with the Stern Hu incident. I even read about this piece on Heavenly signs why China should take note - reflects a lot of the local sentiment but losing a bit on journalistic ethos. Will all these help? Dunno, but it sure helps to put a lot of pressure on the govt of the day. Krudd and his govt will be put under extreme pressure....

    But will it really help matter? Will it help to bring Stern Hu out of the lockup? Will China give a damn? Frankly, doubt it. What they are dealing with is an internal corruption matter with nation wide investigation into the iron ore purchase by some big steel mills which in turn resell to smaller steel mills at 40% or more profit. And where do these big steel mills get their supplies from? The investigation is on going and it seems all three big suppliers will get a look into.

    Stern Hu's arrest? Well put it simply, if the Chinese doesn't have enough evidence, they won't act so recklessly.

    Here's just a simple observation - if the Chinese doesn't have something more credible than just steel mill visit, they wouldn't coin their President' name as the person behind the arrest. If this matter were to go all the way to the top, I doubt if what the Chinese have is just something flimsy.

    For a start, having an internal memo/minute of CISA's strategy in negotiation would be bordering to "trade/stater secret" - at this point, no one knows what evidence the Chinese have. The local media responses and reactions at best, all are speculations and emotional outbursts, depending on what one wants to believe... sure, we can always fall back to claim that China should/must show cause in this case etc... they will, but in due time - until they have gone through the whole investigation process.

    Meantime, here's a good writeup on what went wrong...

    ps: will China's business dealing with the rest of the world be affected? Well, there's this thing "immoral" about the capitalist system, is the unsatiable human desire for profit - as long as there's money to be made in China, the profit seekers will turn up in throngs - these people will find some excuses to overlook or justify their presence over there. Let's not get over melodramtic over all these media brains' claim.
  2. haunting's Avatar
    The Chinese Brick wall...

    Australians doing business in China suggest that prime ministerial references to his prowess at Mandarin and his understanding of China are widely regarded as unbecoming boastfulness by the Chinese. At the same time, Canberra's all too evident apprehension about the level of Chinese investment in Australian resources and about the potential Chinese military threat have resonated loudly. That's even without silly snubs like trying to change seating arrangements to avoid Rudd sitting next to the Chinese ambassador in London.

    None of this explains, let alone justifies, the provocative act of the Chinese in detaining four Rio Tinto employees, including a senior Australian executive. But it may help explain why Beijing has been so dismissive of the Australian reaction and sensitivities to the extent there was no prior warning or attempt to deal with the matter through back channels...
    ** I believe the bold print emphasises the very important point the local media is not addressing, or rather, a point of view they prefer not to accept as credible or valid, that is, the Chinese is treating Hu and his stuffs and the arresting of quite a few high level purchasing GMs from various steel mills as an internal corruption case. It seems the level of corruption in the steel industry has reached a stage where the top level of officialdom has to be called in to provide the necessary authority to cow the regional officials into cooperation.

    Right at the beginning the Chinese foreign spokesman Qin Gang has been saying this matter is very much a state matter and has suggested to Australia not to politicise it as it wouldn't do Australia any good...

    Now I am not sure if anyone has really listened then or is paying attention now, if the investigation were to reveal with evidence that Hu has played a role in this case... would this still consider a "provocative" act against Australia?

    Would it make matter unnecessarily complicated between the two governments?
  3. haunting's Avatar
    China reviews iron ore import licences

    ** this should give cause for concern here because of its impact - the house cleaning and head kicking would eventually remove those rogue and uncooperative license holders. The remainder will be so cowed that they probably would not dare to sign up any deal without the aokay from CISA.

    Can see its implication or not? It means if the big three suppliers were to pull a stunt like this year by signing up with the Japanese first and if the Chinese were to hold out for more discount, they won't be able to off load their ore in the spot market that easily and push up the spot price. It won't be easy without the "unofficial" Chinese participation. That would also mean there will be plenty of pressure on' the big three suppliers to maintain a consistent production and sales while the negotiation is ongoing...

    The longer the impasse the worse will be the numbers for everyone, including the Chinese steel mills. It will be a battle of will and reserves, the attrition will surely wear down the party with the weakest financial reserves. And here's where "hell" will set in for the big three unless they can sign up some big enough contracts with the non-Chinese steel producers - the Chinese has almost unlimited capital resources with US$1.7 trn stashing in the background and cheap bank loans to tide over the hard time...

    What's the chance for the big three to score BIG in the next round of iron ore price talk?

    Going for broke could have a very devastating impact on all parties. It will almost guarantee a lose-lose outcome with the eventual winner walking off limping whilst the losers lying dead or broke... and this just involves iron ore market only. The Chinese has yet extend that to their copper and coal imports.

    Let's hope they won't really go all out for broke with Rio/BHP and they will leave the coal and copper market alone... but if they are really this pissed with Rio/BHP and are hell bent to go for broke , the economic impact would be really devastating for this country and not just these two companies.

    .. let's just hope Krudd knows what he needs to do next, but for those Rio/BHP merger proponents I think they should seriously sit down and work out the numbers and the cause/effect and cost/benefit of the whole scheme.

    I hope they will take into account and plan on how to deal with a mad elephant charging at them...

    But on second thought... this is a free country and no one can really tell Rio/BHP what to do, so regardless the project will be pushed on and surely it must be fun I guess - you don't easily get to tame a mad elephant in anyone's life time. On top of that, it's been all agreed that the deal was a right call... so, what? I worry?

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