China blocks Rio, BHP from spot iron ore sales

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: China, the world’s largest buyer of iron ore, blocked BHP Billiton Ltd and Rio Tinto Group from selling the raw material on the spot market to press them to settle contract prices, research company CBI China Co. said.

The China Iron & Steel Association and China Chamber of Commerce of Metals, Minerals & Chemicals Importers & Exporters told importers they would have licences suspended for buying Australian iron ore on the cash market, David Du, a CBI analyst, said recently in Shanghai.

Rio and BHP are locked in talks to settle annual contract prices with Chinese steelmakers, as Rio sought to get more than the 71% price gain won by rival Cia. Vale do Rio Doce. The Chinese government two years ago imposed price caps on imports in an unsuccessful attempt to limit increases.

“It shows the resentment of the Chinese mills toward BHP and Rio for selling more iron ore on spot market, instead of concluding a contract as in the past,” said Helen Lau, a Shanghai-based analyst at Daiwa Securities Group Inc.

BHP fell as much as A$1.96 ($1.8), or 5.2%, to A$35.54 (about $34) in Sydney trading recently on the Australian Stock Exchange. Rio was down 3.7% recently to $122.35. The two companies, which mine in Australia, are the world’s second and third-largest iron ore exporters.

Rio, based in London, sold iron ore on the spot market at as much as $190 a metric ton in December, more than twice the equivalent of $85 a ton it sold under contract, it said then. It plans to triple iron ore sales in the cash market to 15 million tons a year, up from 4.5 million tons in 2007.

About 15% of BHP and Rio’s ore sales to China are sold on the spot market in past years, CBI’s Du said. Qi Xiangdong, vice secretary general of the China Iron & Steel Association, said he was unaware of the spot sale boycott, adding “most of the ore purchases should be done through long- term sales”.

“Our position is we are still involved in pricing discussions,” Gervase Greene, Rio spokesman, said. “We have said we expected to sell up to 15 million tonnes on the spot market this year and that hasn't changed.”

Iron ore sales from smaller companies in Australia have not been blocked, Michael Kiernan, chairman of Perth-based producer Territory Resources Ltd., said today.