Aussie Government gets into iron ore price war

SYDNEY - An Australian Government minister said yesterday he would be "very alarmed" if China introduced price caps on what its steel mills will pay for iron ore this year.

"China would obviously be expected to behave in the same way as every other free market and normal commercial negotiations would take place," Australia's industry minister, Ian Macfarlane, said.

"Our Government would be very alarmed if price caps were introduced into what should be a free market operation with China."

The Chinese Government yesterday warned it would intervene if talks over term iron ore prices result in unreasonable price increases.

China's top planning body said it would not accept a rise in iron ore prices this year, intervening in talks between Chinese steel mills and global mining companies BHP Billiton, Rio Tinto Group and Cia Vale do Rio Doce.

Suppliers of the steel-making component are reaping "huge and unreasonable" profits after prices rose 71.5 per cent in 2005, the Beijing-based National Development and Reform Commission said.

The commission and the Chinese Trade Ministry said in a joint statement they would take action against "unacceptable" prices to protect China's steel industry, the world's largest.

"It looks like they are trying to throw their weight around and trying to influence a free market process," said Tim Barker at BT Financial Group in Sydney.

"We'll have to see whether that works. The market is still short of materials."

BHP and Rio, which are making record profits after the price rise last year, are seeking increases of as much as 20 per cent this year to benefit from soaring demand in China, which analysts say imports 43 per cent of the world's seaborne iron ore shipments.

Macfarlane said the price talks should take place without Government interference.

Baosteel, which is representing China's 16 biggest steelmakers in the talks, has asked for lower prices.

Lower steel prices and high raw material costs have crimped profits at Chinese steelmakers. One-fifth of China's 66 biggest steelmakers made losses in November.

- REUTERS, BLOOMBERG