China's next iron ore pricing negotiation is now in jeopardy after Rio Tinto suspended this year's talks with Chinese steel mills without agreement just two months before the 2010 round was due to begin.
The world's second biggest miner of iron ore was no longer negotiating with China's steelmakers - the world's biggest - to agree a benchmark iron ore price for the contract year that began in April 2009, Sam Walsh, head of Rio's iron ore division, said on September 4.
Rio Tinto chief executive for iron ore Sam Walsh said the company was no longer negotiating with Chinese steel mills on a benchmark iron ore price for the 2009 contract year.
Walsh said the company is selling iron ore to Chinese steel makers on a provisional price, which is based on Rio's 33% benchmark price cut agreed to earlier this year by its Japanese customers.
When asked whether China iron ore talks will resume at any point, Walsh said: I expect that they will but I don't know when.
Analysts said negotiators were in such a dilemma over the failure to reach agreement that it boded badly for next year.
The top three miners and the Chinese buyers are unlikely to achieve an agreement this year as both sides are intransigent. However, negotiations for next year also bristle with difficulties, ChinaDaily said, citing Yu Liangui, director of the research center at Mysteel consultancy as saying.
Fan Haibo, analyst, Xinda Securities, said if next year's negotiation does take place, they would not be easier than this year with the global economy recovering and iron ore demand from Europe, Japan and Korea booming again.
Officials with the Chinese Iron and Steel Association (CISA), the negotiating body, were not available for comment.
Mysteel's Yu said the most difficult part of the next round of negotiation was whether and how China would insist on a Chinese mechanism.
Fortescue Metals Group (FMG), Australia's No.3 iron ore miner, agreed on Aug 17 to supply iron ore for all Chinese clients at a 35% discount on last year's prices in return for $6 billion of financing from Chinese lenders.
CISA hopes that the three largest global iron ore suppliers-Rio Tinto, BHP Billiton and Vale-will accept the price cut it agreed with FMG.
China earlier refused to accept the drop in iron ore prices of 33%between another iron ore giant Rio Tinto and Japanese and South Korean steelmakers. When Vale and steel mills of Japan and South Korea agreed to a markdown of 28%, Chinese steelmakers still did not say yes.
The China mechanism is just a rough concept, without a clear-cut framework, Yu said, adding that CISA lacked communication with other international competitors such as Japanese and Korean steel makers.
It will be difficult for Chinese negotiators to fight in isolation, he said.
Rio's announcement about walking away from the talks was in line with Vale, whose chief executive Roger Agnelli said a few weeks earlier the company was not negotiating with Chinese steel makers over the 2009 benchmark iron ore price.
A senior executive of BHP China told Chinese media that BHP would not follow the iron ore price of FMG.
But vital to the iron ore talks for China is the need to reduce its reliance on BHP, Rio and Vale and accelerate overseas investment and operations, said Yu.