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Tea leaves reading on RIO...

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I know I am sounding like a Rio knocker here in this post but never mind, I'd rather speak my mind and feeling sorry later than not speaking at all. If you are an existing RIO investor, you should take note.

1) According to news, RIO, of the big three has been the most vigorous iron ore player in the Chinese market. It has the most extensive sales network among the three and it has been taking a marketing and sales approach of market penetration than profit optimising comparing with the other two. Rio has been extremely successful with this strategy in China to date, mainly due to the good work done by Stern Hu and his team. But ever since the "Spygate" incident and with Stern and his team arrested, there has been a sea change in the Chinese iron ore market, according to those who are working in the industry and as usual "anonymous" speakers...

2) They said, the Rio sales network is now in complete shutdown or in ruin, which, in the Chinese market, especially among the small to medium size steel mills is the most important sales channel. Without this network, Rio sales will be greatly impacted. To make matter worse, because of the serious implication of spygate and its potential fallout, in terms of punishment to the "locals", not many steel mills are willing to deal with Rio for fear of being link to the matter. In fact they are saying right now no one is ordering any new stuffs and they are living on their current stockpile, adopting a wait and see attitude. There is extreme fear in the market and everyone is keeping their head low...

Because of spygate, the implication from here would mean life will be extremely difficult for Rio even after the spygate is all settled or buried because the steel mills are worried, if not, fearful of the implication of doing business with Rio and the implication of their state loyalty - which brings up the question on Rio's future - will they do well without the Chinese market?

3) The current business as usual claim by both Rio and BHP, according to these people, the business is mainly about the existing or "old" contract fulfilment. Once these contracts are cleared and comes time to negotiate new ones, it will be a totally new ball game with a different set of time frame and model and possibly vast rule changes. So, it is not a good idea to assume the same old same old will proceed as usual because the next round of talk will be "unprecedented" and outcome at best is completely uncertain, subjecting to many variables, which translated would mean RISK.

There is another element of risk being introduced by the merger of production between Rio/BHP as there is no telling how the Chinese will play their "anti-monopolistic" laws. Many are saying it is a toothless tiger but unless Rio/BHP are willing to gamble on the Chinese market, they should take that more seriously.

4) Here're some numbers - in 2008, the total iron ore sales for Rio in China is 83.38 million tons, representing an 18% growth, constituting 53% of total production. Also in that year, Rio's iron sales had exceeded their copper sales in China, making their iron ore business to be the most profitable unit... question: will the spygate expand to Rio's copper market practices?

5) Now you can take all these with a pinch of salt and ignore their credibility, or you can consider all these are just parts of the fog of war - market disinformation and misinformation - as part and parcel of the game ... but there is one thing you can do to protect your self interest as a Rio investor - watch Rio's share price movement closely. I would describe two possible scenarios you should pay attention to:

5.1) if and when you see a sudden big % plunge in Rio's stock price - that's a sign that big investors are exiting the stock; or

5.2) you begin to see a series of small price decline, a consistent but concerted selling through program selling

Those are the signals you should take heed.

Ok, I am done. Good luck to you lucky Rio investors. Don't say you have not been warned.

Good news week for Rio

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Updated 2nd-September-2009 at 06:25 PM by haunting



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  1. haunting's Avatar
    More good news on Rio...

    The end result is earnings per share (EPS) forecasts by the broker of US253c this year, US286.1c in 2010 and US298.5c in 2011, which compares to Citi at US241.8c, US321.1c and US336.5c respectively and Deutsche Bank's 2009 and 2010 forecasts of US225c and US307c. Credit Suisse is forecasting EPS of US247.8c in 2009, 231c in 2010 and US323.2c in 2011, showing brokers remain some way apart on their estimates.
    The average price target according to the FNArena database is $63.50, with a fairly narrow range given Citi is equal top with its target and the lowest in the market is Credit Suisse at $60.00. Shares in Rio Tinto today are stronger in line with the broader market and as at 11.35am the stock was up $2.22 at $52.30.
    ** thought it's only fair I put the opposite of my view here for the record. This is the price of sticking out one's neck against the whole gamut of industry experts.

    ... do I feel a bit like Don Quixote? You bet!
  2. haunting's Avatar
    Chinese burn holds more heat than fire

    China's just digging itself a deeper hole

    Remarkable journalistic insights, gotta say. Thought I like to highlight this - state secrets may be an excuse or a flimsy charge; but corruption is not. Corruption could not happen without two consenting parties. In this case the Chinese are saying there are possibly 16 Chinese steel mill officers involved in accepting bribes from Rio - this is quite easy to prove really because the penalty for these Chinese steel mill officers could mean big sh** if they are found guilty and no one is that stupid as to offer their life as a tool for the state to convict Stern and his staffs. Fair point?

    ... not sure why these Aussie journos are that "blind"?

    Ok, now their Chinese counterparts reporting on the case...

    Iron Ore Espionage Allegations Overshadow China Deals in Australia...

    Note the difference between the "free world" journos vs the journos from a "corrupt autocratic system"?
  3. vincent191's Avatar
    BHP has more experience than RIO in the China trade. In fact, BHP is sitting quietly on the sidelines waiting for the RIO cake to fall off the table.

    I wouldn't worry about the Chinese steel mill officers. This is not about punishing their own, it is about brinkmanship and an attempt to bring RIO to heel.

    I concur with haunting's post. I have been involved in the China trade (steel) for years. The latest news is RIO has already recall some of their executives from China in fear of further reprisals.

    Any vaccum that the RIO spygate may create there are plenty of other suppliers to fill in the shortfall and trust me BHP, FMG, Vale & many of the up and coming producers in the Mid West will be more than willing to take up the shortfall.
  4. haunting's Avatar
    BHP has been playing their hand extremely well thus far. Kudos to them really.
  5. haunting's Avatar
    Export prices plummet, threatening recovery

    Export prices accelerated their falls in the second quarter dropping 20.6 per cent, following a 4.6 per cent fall in the first quarter of 2009. Analysts surveyed expected a 16 per cent fall in quarterly prices, according to Bloomberg.
    ** those numbers I think are before spygate blew up in our face, now that the talk between Rio and the Chinese is in limbo and the Chinese is further found engaging in talk with Vale separately, more drop in export is almost a certainty. The question is more like how bad...

    These are pretty clear signals that Rio's outlook is getting dimmer by the day... well, jmv, since I am up against a whole market full of analysts... I can't possibly outsmart the whole lots of them, can I?
  6. haunting's Avatar
    Read it here... click me!

    China's demand for Australian iron ore softened last week as the federal government received information confirming that four Rio Tinto employees were detained over their role in 2009 iron ore price negotiations.

    While Rio Tinto, the world's second-largest iron ore producer, enjoyed very strong iron ore exports to China during May and June, in the last week iron ore demand from Australian ports softened, according to global shipping market information provider The Baltic Exchange.

    "I think we've certainly seen a recent softening of demand from the Australian ports from the last few days or a week or two," The Baltic Exchange's chief executive Jeremy Penn told ABC Television on Sunday.

    "But we've also seen a lot of fixtures from Vale, in Brazil, to China ... so there's been continuing demand there for freight of iron ore."
    ** if the news from the Chinese side is correct, bulk of the Rio ore sent to China back in May/June period was sent there without firm order, and the unsold ore is now "parking" in ware houses in various Chinese ports to the tune of about 26mln tonnes.

    However, there's also an Australian news talking about ships leaving WA shore are ships with "ordered" ore that has been "paid for" according to a set of complex rules

    I guess since it is published in the Australian and from a reputable journo, this news must be "true" and not just a total spin. So yes, let's assume the ore sent to China back in May/June had been paid but yet still available for sales...

    And now, with this latest demand softening in China news but excluding the Brazilian ore... etc, the only sensible conclusion here is frankly this question - what does Rio mean by "business as usual"? Or has the Chinese really shot themselves in the foot? Or it is Rio that is really shooting itself in the foot with millions of ton of ore unsold in China?

    Time will tell. But if you think a little deeper, it doesn't make a lot of sense with the information provided - for example, Rio is expecting the demand for IO will pick up in H2 and yet there's no increase shipping activities according to BDI movement... make sense?

    And with regard to Stern Hu's case, here's from S.Smith...

    Foreign Minister Stephen Smith on Sunday said he had received more information from Chinese officials after raising the matter with a Chinese vice foreign minister late last week.

    "It's quite clear they are focusing on a criminal or judicial investigation relating to the 2009 iron ore negotiations,' Mr Smith told ABC Television.

    "They are not interested in what we would regard as espionage or national security matters."
    ** a "criminal or judicial investigation", that would make the matter a totally internal Chinese matter and is much easier to convict - not many people realise or want to accept this - the laws governing corruption is quite clear and well defined over there, but the enforcement of such laws is quite inconsistent. Most times it is carried out selectively giving the official a lot of "leeway" in the final decision. If anyone finds it hard to understand or accept over here, may be it will be easier to grasp if one were to equate that with the Aussie version of official discretion in how the FIRB rules are applied.

    Fair comparison?
  7. haunting's Avatar
    China over-plays its hand

    ** this write up is worth a keep because frankly I would like to come back to revisit the views of these market experts say 6 months down the road where the coast is clear or when the "fog of war" is dispersed.

    This is the current "mainstream" thinking in Australia which I got to say is edging near a point where if this were to turn out wrong, Australia and its mining giants will be in for some butt kicking.

    1) I am no sure if this is done on purpose or not, there is an over-emphasis on EC's approval on the Rio/BHP merger but completely ignoring the Chinese threat of applying their anti-monopoly legislation, thereby setting up a potential for show down with China should the plan go ahead.

    Based on the many comments from those who really know how the Chinese work, that the arrest of Stern Hu is a warning to Rio and Australia, indicating how serious and how China will play their hand if their security for commodity is threatened, I don't think I would like to take their actions all these while as just plain empty threat.

    How much clearer do the Chinese have to make their point clear?

    2) There is some kind of spin being sent out on the Chinese spot market for IO here. So far, only half of the IO sent to China has been sold with the remainder still sitting in the warehouse with no official auction. If there is still Chinese steel mill buying from the market, there is a good chance that they are buying from the Indian and not from the Aussie because of their fear of being linked to the Spygate affair. Can't see how this could be construed as all positive.

    3) Even assuming the spot market pricing were to become a fixture instead of contract negotiation, the assumption is still full of flaw because it has not taken into account of what the Chinese are attempting to do at the moment. They are clearing house big time and they are taking a complete audit through the IO market, from the custom dept to all the big steel mills in China through CISA.

    The Chinese are so determined to get to the bottom of the whole market and its related manipulation that it is in my view grossly dangerous by assuming business will be as usual in the next IO negotiation and if it were to be deadlocked the spot market will turn up being more advantageous to the big producers. There's no certainty in this claim as far as I can see. Why would it?

    The usual readily available market information like production numbers, insider information etc would be hard to come by after the house cleaning; and I doubt if there will be others willing to provide the information to the producers now that they know CISA is watching them closely.

    It is really quite foolhardy, if not arrogant to assume it's business as usual, and the big Aussie producers will be better off with a new pricing system.

    In my view, the initiative after the Stern Hu incident will go to the Chinese, it's they will be calling the shot, and not the big IO producers. To push on a tough stand, the Aussie producers are exposing themselves to the potential risk of being completely, if not partially locked out by the Chinese if they were to sign up with Vale, giving all their long term contracts to the Brazilian.

    Granted, Vale could not provide all the IO need of the Chinese, but, it will surely make a big dent in the big Aussie if the Chinese were to allot bulk of the Aussie shares to the Brazilian - not sure if this scenario has been considered by this market expert?

    In any case, time will tell. I will surely come back to this once the dust is settled. I like to see if these market experts are actually that prescient in their market view - gotta say I am not impressed at this point.
  8. haunting's Avatar
    1) there is talk of using quota to control the rampant imports of IO into China, this is in direct response to the latest development in the Chinese attempt to "house cleaning", primarily in reaction to Rio/BHP's recent tactic of sending IO to China without a "firm" order; this move will make the current "BS" or "spin" or "fog" being sent out by all the producers id as is - how much is ordered and how much of it has been fulfilled;

    2) there is talk of imposing escalating warehouse charges in various Chinese port to control the the amount of IO being imported into China; this will have a direct impact on Aussie IO currently "parking" in various Chinese ports;

    3) there is talk of copying the Japanese "model" of IO trade management but the Chinese are well aware of their internal problem and the weak and diverse nature of the steel industries; they acknowledge there is an ingrained weakness due to the many "hidden" and unspoken rules and they have placed that to be one of their priorities in the house cleaning exercise;

    4) they are aware the European IO is making a headway to the Chinese market although currently the quantum is still insignificant comparing with the big three;

    5) they are aware they have lost the initiative at this point to the producers and they will need to import at least 50% of the IO, the question is more on price management and the pricing model as well as from which producer - with the view that the price is fair for long term supply and growth to the Chinese steel industry;

    6) they are aware the current spot market price can be easily manipulated and it does not reflect the true demand from the Chinese steel industry; the two pricing models of spot market pricing and the long term contractual pricing is creating an undesirable impact on the small to medium steel mills; they are also looking at the BHP proposed model but believe it will not work out to their advantage due to the "mess" within their steel sector, primarily a lack of a single voice from a central body to represent the industry - this will be their first priority;

    7) more, but based on what is reported, it seems the producers are still in upper hand but a lot will depend on how well the current house cleaning by CISA will result in exerting a real control on the various vested interests within the Chinese steel sector; the point worth considering from the Australian angle is this - there is a need to balance out the cost/benefit of profit maximising for the short term vs the good will and long term sales from the Chinese. The Chinese are fully aware that its' the volume sales that matter most to all three producers (as in all commodities) - this is where they believe their bargaining power lies.

    Right now, they are in eager discussion with Vale, although not confirmed by Vale, it seems the possibility of a deal is looking good - translated, wait and see. Well, let's hope they don't succeed, because if they do, it's bad news for Australia...
  9. haunting's Avatar
    Brokers Remain Divided On BHP Value

    ** it seems none of the analysts has factored the "Chinese risk" BHP is exposing itself to with the recent merger proposition. They are potentially ignoring some or all of the ground work the Chinese are currently building in preparation for future price negotiation, starting with IO. There is every chance that this will spread to other commodities like copper, zinc, coal and nickel... let's wait and see.
  10. haunting's Avatar
    Hu - persona non grata?

    ** not after he has been found guilty and probably locked up not less than 2 years, this my bet. In any case the emphasis for the Chinese is to clean up their IO market to make sure they are not at the receiving end of continuous price rises. This has been made quite clear by this news report.

    They may not be able to turn the table this year, but just give them more time, I am sure the table will turn against the producers. As far as I am concerned, commodities are "valuable" only if there is demand. Without a market most commodities don't worth the dirt they are sitting on. And the Chinese know this, so are the producers - it's darn silly for Rio/BHP to try cornering the IO market through their merger. If China were to be a smaller market, they could have got away with the move; but with the Chinese market providing 50% of the demand of their products, and not just IO but others like coal and copper which are part of the bread and butter earners for these two, they must be quite mad to try screwing with their biggest customer.

    At best, they could lead in the short term but longer term I am quite sure they will be the ones paying the ultimate price, in the process taking all of Australians down with them. They should always remember that China has a centralised authority and they are not dealing with individual company but a big whole business entity called the China Inc... never pick a fight with someone you cannot win, thought they must have heard of this before?

    To those who doubt what I am saying, well, let's wait for it. Time will tell... already at this point I am quite sure Rio and BHP are feeling the heat with the sudden plunge in their spot market sales. The latest news from China, and quoting one of the top 10 steel mill purchasing GM, in the whole of July, he has not bought a single tonne of ore from Rio, and he is quite sure that his colleagues are doing the same...

    Those that are buying and are maintaining the spot price are probably the really desperate small to medium mills, but, for Rio and BHP, their focus is on volume sales, which, for as long as they are maintaining this attitude of wanting to corner the big Chinese steel mills demanding both high price and volume sales - they are dreaming.

    It will not happen. Or if it were to happen this time, it will become much harder the next time and so on until the playing field is reversed, to the advantage of the Chinese, which by then, their knife will be out and they would demand every pound of flesh from Rio/BHP to even the score.

    The only way forward for all the parties is to come to a compromise where they should seek to strike a balance between supply and demand, and they should aim for a more equitable trade proposition between both sides.

    Aiming for a 40% price increase year after year consecutively would serve to kill the goose that lays the golden egg. It's totally counter productive for all the parties involved. To make it worse, this goose is not a real goose, it's an elephant!

    ... now instead of golden egg, they are gonna get some seriously big pile of dung from an angry elephant.
  11. haunting's Avatar

    ** the full title of the news: "Brazil benefits from Hu detention" - how misleading. Hu is just an incidental victim in this game of IO chess. No matter how the media is going to window dress the issue, there is no escaping the reality behind the title - it's the Aussie miners that are being targeted in the Chinese retaliation.

    And this just the beginning! (As anticipated in my blog umpteen times! Sad!)

    Next, the question, as usual: what's pushing the investors' rush to gobble up these two's shares? I mean both Rio/BHP? It's almost a guarantee that their next quarterly or half yearly report will be under water!

    ... and until the conflict with China is resolved, there's no guarantee that they will sign up with the Aussie producers in the next round.

    So how? Investing by hope and prayers and then expecting a winning outcome?

    Good luck.
  12. haunting's Avatar
    Stern words for Rio's mess in China

    ** sure am glad to read this piece - it's all about the big picture and future prosperity for the young...
  13. haunting's Avatar
    Read the whole news article here...

    Global miner BHP Billiton Ltd has settled annual contract prices for almost a quarter of its 2009 iron ore volumes and price terms for another 30 per cent.

    Contracts for some 23 per cent of volumes reflect prices that are about 33 per cent lower than last year's price for fines, and 44 per cent lower for iron ore lump.

    The contract prices are the same as those achieved by the world's second-largest iron ore miner, Rio Tinto Ltd when it settled prices with its major Japanese, Taiwanese and South Korean steel mills earlier this year.

    BHP Billiton said a further 30 per cent of its total iron ore volumes will be sold under a mix of quarterly negotiated, spot market and index-based prices.

    "These terms vary and reflect the specific needs and requirements of each customer, consistent with our marketing approach," it said on Wednesday in a statement.

    The mining giant said negotiations for about 47 per cent of its iron ore volumes are ongoing.
    *** since I have a bias against the two big iron ore suppliers and am betting their price will go down, I am not taking this as a good news because thus far, BHP is saying they have only managed to sell 23% of their ore in long term contracts with another 30% yet to be sold through the spot market and/or the index based system.

    ...but I could be wrong here since I am completely loss on this line - "The mining giant said negotiations for about 47 per cent of its iron ore volumes are ongoing." - I don't know what it means. Or my guess here is this 47% of the iron ore has no taker thus far and BHP will have to try its luck next time.

    If my guess is right then this year's BHP has managed to sell about 53% of its IO at various prices with 47% yet to get any offer. It will be a lean IO year for BHP I think...

    Also, regarding the spot market in China, the supply-demand situation may change drastically now that the market knows BHP (and probably Rio) has so much unsold IO, it now has become a buyer's market.

    ... but we will see, there's no point jumping to any early conclusion.
  14. haunting's Avatar
    Chinese firms buckle in iron ore price war...

    "I think this really means that we're going to move on, the Chinese are happy to accept the cut that was originally negotiated with their Japanese steel producing peers."

    The annual contracts so far cover 23 per cent of BHP Billiton's total volume, but in a major break from the past, BHP is relying less on annual contracts, selling 30 per cent of its iron ore volumes through a mix of quarterly contract prices, index prices and market prices set on the spot, or daily, market.

    Negotiations on the sale of about 47 per cent of BHP's iron ore volumes are ongoing, the company said in a statement today - a figure that would presumably account for the bulk of its shipments to China given the recently finalised annual agreements with Japan and South Korea.

    However, at least one South Korean steelmaker is holding out - POSCO says it is still negotiating with BHP Billiton to get a better deal.

    "Nothing has been determined, we are still negotiating," POSCO spokeswoman Youn-joung Choi told Reuters.
    ** we will see if he is right...

    The news from China seems to be inching towards the abolishment of the spot market, which basically serves the small steel mills that are unable to get their ores from either the producers or from the bigger steel mills. Also because of the price gouging by the license distributors, quite a few of their license will be withdrawn - if these suggestions were to be implemented, it would mean BHP's preferred method will become a quarterly or half yearly negotiation affair - without the spot market's "misleading" price level since according to the Chinese the spot market price is heavily manipulated by the producers.

    Without the spot price as a form of price indication, BHP will be negotiating with China on purely supply-demand forces and most likely "doing it hard" because the Chinese are expecting a 20% pull back in demand in H2 and they are saying the last 6 months' IO imports did not reflect the actual market demand...

    So, let's see if Mr Wendt is right or just spinning for BHP...
  15. haunting's Avatar
    Iron spot price up as Asia returns

    ** at spot price of US$100, both Rio/BHP should be rejoicing, but let's see if they are really rejoicing... I like to see that in the H2 report.

    Whilst the spot price is at a high, Vale has been singing a slightly different tune...
    Yesterday, Vale, which like Rio is yet to announce any price settlements this year with China, flagged further changes.

    It said it had put in place new marketing policies, including more flexible pricing, that were important for its business in China.

    The company has been offering prices inclusive of freight and at a 20 per cent discount to last year's contract since the first quarter.
    In fact Vale has been making waves on the Chinese TV with star such as Rinaldo "assuring" the Chinese people that Vale is there for the long term and they are not into profit maximising with their IO sales but as a friend to the Chinese and growth together in their march towards greater prosperity...

    They even pointed out they have spent US$1.9b buying ship from China just so they can ship and sell their IO cheaper to the Chinese. To make it easier for the Chinese steel mill, Vale will subsidise 20% of the shipping cost, etc....

    Grand gesture and right under the Rio/BHP's nose they are stealing the market share away from them. Yes, Brazil is stealing the IO market shares from the Aussie!

    I don't know what kind of agreement they will sign with the Chinese but if it is some kind of long term sales contract that locked in the Chinese for a long time... well, well... *&^%$#@!
  16. haunting's Avatar
    The local analysts' view... click me.

    According to Deutsche Bank, the issue with respect to BHP's earnings in the sector is the uncertainty of estimating pricing as while 30% is locked into non-benchmark pricing 47% of output has no price settlement at present. While the broker notes this also provides an opportunity as non-benchmark sales could be increased, so taking advantage of current spot prices, it also means there is significant risk if prices do come down in coming months.

    For Bank of America Merrill Lynch this uncertainty is too great and it maintains a Neutral rating on the stock with a price target of $40.00. Deutsche Bank has a similar Hold recommendation but regards the stock as relatively expensive when compared to both Rio Tinto ((RIO)) and its own valuation...
    ** if I am one of these local analysts I would pay more attention to Vale, that's where it matters... thus far, the spins from the local media have been clouding out the "real" issue which concerns the bread and butter of everyone. In almost every news report, I'd noticed the journo would never failed to put a positive spin on what they are reporting. Being patriotic (misguidedly, gotta say) or parochially loyal is one thing, but being objective and truthful and professional in carrying out their duty is another - somehow some seem to have lost their disciplines and have become the mouthpiece of the big enterprises... is this the standard of Aussie journalism?

    Worse still, it is quite clear that some local investors are lapping up all these "good news" without really questioning what is being fed to them...

    ...anyway, do I care?
  17. haunting's Avatar
    Chinese says...

    China, the world’s largest consumer of iron ore, said suppliers of the steelmaking material have “distorted” the market and disrupted annual contract talks by “massive” selling on the cash market.

    Spot iron ore accounted for about 83 percent of imports this year, the China Iron & Steel Association said today in a statement issued in Beijing. Imports have exceeded actual consumption, leading to “huge” stockpiles at ports, it said.

    “Iron ore suppliers have distorted the actual supply and demand balance in China,” the association said in the statement. “This has severely disrupted talks.”
    Spot iron ore prices, which include freight charges, have jumped 31 percent this year to $94 a metric ton, according to the Steel Index. The benchmark Rio Tinto product from Australia is sold at $61 a ton to Japanese and Korean customers. It costs about $14.327 a ton to ship ore from Australia to China.

    There are 152 importers of iron ore in China this year, exceeding the 112 licenses handed out, the association said, without giving details.

    ** guessing now...

    1) expect a cull of the 152 importers;

    2) a possibility of abolishing the spot market, once they found a solution to provide for the small steel millers, and the solution could be provided by Vale, as hinted by Vale' s commercial.
  18. haunting's Avatar
    Who wants to know more about Hu? Click here!

    "We oppose artificial price increases in international iron ore trading and we oppose monopolistic activity in international iron ore trading," he said.
    "China and Australia - especially in iron and steel trading - are complementary to each other. Chinese steel enterprises need to import iron ore from Australia; Australia needs to sell iron ore to China," he said.

    "We should make great efforts together to maintain the long-term, healthy, stable development of the iron ore trade which will benefit companies from both countries."...
    ** I think he is being polite here...

    1) what he really meant - the Chinese media didn't just beat up the story, they were being used as pawns/plots for disinformation/misinformation by the IO producers in the overall game of IO negotiation

    2) the loss in overpaying for IO in the past few years according to the Chinese is in the region of 700b yuan (could be US$ coz the unit measure was very imprecise)

    3) they were disappointed by Hu's over zealous attempt in serving his new master and forgot his "root"; to the Chinese, they believe there's no need of Hu to resort to that kind of tactic to make good of his contribution to his company at such a great cost to his fellow "Chinese"

    4) they will not give what Marius K wants - an index based quarterly pricing system because they believe the Chinese is running a leaking boat in the IO game due to their internal disorganisation, hence they will opt for long term contractual pricing. Whoever, that is, whoever among the big three IO producers is willing to meet them half way will get the deal - translated, if the Rio/BHP team is willing to work with them like Vale does, they are willing to engage them (Rio/BHP), as indicated by the comments he made on mutual needs between the two countries.

    But it is also quite clear that they, the Chinese will not compromise themselves on the past "monopolistic" manoeuvres by the IO producers. In fact, if this matter has risen all the way to the top echelon of the Chinese leadership, there's no way for any compromise for the Chinese negotiators under such circumstance, due to the fact that many big IO steel mills in China, including Baosteel, the chief negotiator in the past had been making much more money through IO scalping has not escaped close scrutiny by the Chinese leadership. The punishment for big time corruption could be very severe, which would make the any back down looks suspicious and for those who were willing "leaker" to undermine the IO negotiation to seriously pull back their horns regardless how much guanxi or backing they have. Their heads are on the line here.

    The recent raising of steel price by Baosteel has been rumoured as their "show of force" to CISA, as that indirectly had put more pressure on CISA to accept the 33% offer, but based on CISA's reaction to all these pressures, and its steadfast refusal to budge indicates many "Chinese eyes" are watching, esp those at the top, at the situation with serious consequences to the Chinese negotiators. That however does not mean there's no serious consequences to the Australian IO producers... judging by all the song and dance act and the charm offensives made by Vale in pledging their sincerity for mutual benefits and to march in step with the Chinese objectives.

    5) back to Rio/BHP - do they want to play ball with the Chinese? Or not?
  19. haunting's Avatar
    It seems the Chinese are demanding a single IO price and to achieve that they are willing to adopt a high handed approach, sort of crash and burn strategy on their internal IO market structure, firstly by culling the 112 import licences to just about 5 or 6. In addition, they are talking about some kind of import quota (not sure on exporters or on importers) without specifying how it is going to implement such scheme.

    They have also revealed the Chinese negotiators were "screwed" by the Japanese by agreeing with the 33% offer because of the cheap coal offers from BHP, whilst the Japanese had gained from both fronts (coal and IO), the Chinese were stranded by their high internal cost in coal production. Hence they were very unhappy with how the whole price negotiation and how it was structured. But most unhappy of all, they felt they are the largest consumer of IO and yet they were being bullied into a price taker instead of a price leader, due to the concerted price "scamming" among the producers.

    And this is what they are saying after two days of talkfest - all the steel mills in China will accept only a single price, negotiated between China and the IO producers. Although they didn't say it, but it is sufficiently clear that they will disregard whatever price the IO producers had negotiated with other countries. To them, there's only one IO price, a Chinese IO price for all the steel mills in China.

    Also implied was their emphasis on "Chinese market, Chinese rules" - not sure how they can enforce that and not sure what kind of impact this will have on the big three IO producers. But based on the IO price impact on their steel price and the overall economy, my suspicion is they will play hard ball from now on and if they can't really shake up the whole system within the next couple of years, they will persevere on it.

    The heat is on...
  20. haunting's Avatar
    Rio Tinto's $1.9bn Madagascar project under scrutiny...

    ** let me just parrot the local media by saying this Rio is innocent! It's the local government that is the corrupt party! Full stop!

    Here are two other cases that would prove Rio's innocence if you don't believe me...

    Guinea, Rio Tinto tensions escalate

    Rio Four versus iron will of the state

    ** my pledge again - Rio is innocent!
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