China a preferred partner in projects, Says Rio Tinto

Reuters in Perth
23 March 2010

World No. 2 iron ore producer Rio Tinto will turn to mainland partners for future iron ore projects as it beefs up sales to the world’s largest market for the raw material, adding annual price negotiations were still on track.

Rio’s iron ore division chief Sam Walsh said the firm’s US$2.9 billion joint venture deal with Chinalco this month to develop an African iron ore mine will enable it to sell more ore in mainland and the Middle East, as well as opening doors to additional partnerships.

Walsh’s comments came as four of its executives faced charges of stealing commercial secrets in a Shanghai court on Tuesday after admitting to bribes in iron ore negotiations with mainland.

Walsh declined to comment on the trial, which entered its second day.

When asked if Rio has recently settled any quarterly pricing contracts, Walsh said he was unaware of any settlements in the industry and added that the current disparity between benchmark and spot prices was unsustainable.

“We would support the benchmark pricing system if it reflects market fundamentals,” Walsh told an industry conference in Perth.

“But the wide disparity between the current benchmark system and spot market is not sustainable and it needs to evolve,” he said. “Whether it evolves into a quarterly or half-yearly pricing system, time will tell.”

Speaking at the same conference, BHP Billiton’s iron ore president Ian Ashby said BHP continued to negotiate long-term iron ore supply deals for tonnages on a market-based pricing system.

Supply contracts would continue to trend towards transparent and regular pricing he said.

Ashby noted iron ore’s floating price market grew 20 per cent globally to about 500 million tonnes last year.

Rio is forecasting mainland’s iron ore demand to double to about 900 million tonnes per year by 2020. It expects to lift iron ore production capacity 6 per cent to 230 million tonnes next year, followed by a much bigger jump to 300 million tonnes in five years.

Separately, Rio said approval for its iron ore joint venture with BHP in Australia’s Pilbara iron belt may take longer than expected due to a need to pass regulatory hurdles in the European Union.

The approval process could be drag on until late this year. Rio has previously said it was hoping for a determination by mid-year.

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