China cries foul on ore fix
BHP Billiton and Rio Tinto have deflected heated accusations from China's top economic planning agency that the world's biggest miners have manipulated the market to spur a more than 80 per cent spike in iron ore prices in the past six months.
The surge in raw material costs have pushed steel makers in China - the world's largest importer of iron ore - deep into the red as they battle flattening demand for steel used predominantly for property and infrastructure development.
"The three major miners and some traders have delayed shipments and held back stocks to control supplies in order to send a fake market signal that there was a supply shortage," the National Development and Reform Commission said on its website, adding that the pricing mechanism was "unreasonable".
While the NDRC did not name any miners, the world's top iron ore exporters are BHP, Rio Tinto, and Brazil's Vale.
Beijing has long waged a campaign against the concentration of market power held between the big three, usually through industry body the China Iron and Steel Association.
Steel mills have been forced to buy iron ore according to short-term spot prices since 2009, instead of negotiating annual contracts, which previously was the norm.
The benchmark spot iron ore price has nearly doubled from the three-year lows in September of $US86.70 a tonne to $US158.90 a tonne in February on the back of strong buying from Chinese steel mills. The price stood at $US145.80 on Wednesday.
Major miners including Rio Tinto and Fortescue have recently estimated the iron ore price will settle at between $US100 to $US120 a tonne by the end of the year, but some industry analysts are tipping sharper falls.
Speculation that the big miners have been artificially supporting iron ore prices has been running hot in the Chinese media, following revelations that BHP bought a 100,000-tonne shipment of the raw material in January on the Singapore exchange, in a rare move that was seen as a strategy to stem a decline in prices.
In an emailed statement, BHP said it was "very normal for industry participants [steel mills, traders and producers] to both buy and sell cargo to balance their books". It said it had produced record volumes of iron ore between July and December, "all of which was sold".
"We sell significant volumes on a spot basis, including through widely accessible trading platforms, irrespective of the iron ore price."
Rio Tinto declined to comment.
Industry analysts say both sides try using the pricing mechanism to their benefit to improve their margins.
"I do think [the big miners] look at where the market's going and try and move shipments around to have an impact on the market," said Tim Murray, commodities analyst at Beijing-based J Capital Research.
"But at the end of the day they have a lot of iron ore they've got to sell. I don't think there's a lot of merit to it, they might play around with it a bit but I don't think its serious."
Profits at China's large steel mills slumped 98 per cent in 2012, as slower economic growth hit steel demand in the world's largest consumer, according to the China Iron and Steel Association.