Rio Tinto: Introducing an “Old Friend”?

Ian Bauert succeeds Tony Loo as Rio Tinto’s managing director for China. Bauert had opened the company’s first China office some twenty-five years ago, writes Reuters. Price negotiations between iron ore miners and the China Iron and Steel Association are dragging on, as the suppliers expect a 40 per cent rise, while the Chinese side seeks to limit the rise to 20 to 30 per cent in benchmark prices for 2010, according to ABC News.

China appears to invoke price agreements the international mining companies struck with Japan earlier in 2010, around May, and with South Korea, and asks for lower prices than those agreed with Japan. However, Japanese and Korean buyers had apparently opted for annual contracts which make for better production cost planning in 2008, while the Chinese importers had chosen spot prices which are more difficult to forecast, and seems to have relied on its position as the world’s biggest steel producer in the negotiations. The international suppliers’ stance seems to be that this makes price negotiations with Chinese buyers a seperate issue from the deals struck by the country’s eastern neighbors. An apparent recent preference by China’s authorities for coal over iron ore in its custom duties’ design may add to the cost pressures on the country’s steel producers.

ABC News quotes an analyst as saying that Rio Tinto had “a lot of its eggs in the iron basket” concerning business with China. Price negotiations carry on while the company’s chief negotiator for China, Stern Hu, and three more of its employees remain in custody in China after their arrest last year. The company’s chief executive Tom Albanese said in a statement that he was “deeply committed to developing our relationship with China”.

On the other hand, industries with smaller stakes in the Chinese market seem to have become more cautious in their approach to investment in the country. The European Union Chamber of Commerce in China (EUCCC) last year called on China to better define its “national interests” after the arrest of the Rio Tinto employees.

If Bauert fulfils the criteria of being an old “friend of China”, the Chinese side may be willing to be more forthcoming in coming rounds of price negotiations. They might feel a need to demonstrate that such a status pays.

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Related
China’s Steel Industry: The Grey Area, July 18, 2009
Chinalco, Rio Tinto: No Deal after All, June 5, 2009

Tags: Australia, business, China, commodities, economy, foreign trade, international, negotiations, rule of law, state capitalism