06/04/2010 - 13:57

WA iron ore miners jump on boycott news

06/04/2010 - 13:57

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Shares in Western Australia's junior iron ore miners surged today after China's top steel industry body called for a two-month boycott of iron ore produced by BHP Billiton, Rio Tinto and Brazil's Vale.

Shares in Western Australia's junior iron ore miners surged today after China's top steel industry body called for a two-month boycott of iron ore produced by BHP Billiton, Rio Tinto and Brazil's Vale.

Reports on Monday said China Iron and Steel Association (CISA) had asked domestic steelmakers and metals traders with import licences to stop buying iron ore from the world's top three producers for the next two months.

Shares in local and national junior iron ore miners that are seen as an alternative to the mining giants soared on the news.

Atlas Iron jumped 20 cents, or 7.75 per cent, to $2.78 by 1516 AEDT while Fortescue Metals Group was up six cents at $5.03.

The China Daily website reported that Securities Times had quoted CISA Secretary-General Shan Shanghua asking domestic steel companies and traders with import licenses to stop buying iron ore for the next two months from Vale, BHP and Rio Tinto to protest the price monopoly.

But as reported on the China Daily website, steel mills seemed to have a divided front on the call to boycott.

"CISA sounds like a lobby representing Chinese steel mills. However, it does not run the business, and hence it has no idea of the real needs of the steel mills," said a sales manager from a Hebei-based steelmaker, on condition of anonymity.

"If we don't purchase iron ore for two months, it will have a negative impact on our output. We will talk with miners privately to secure ore supplies."

Interestingly analysts say the call for a two-month boycott is grandstanding and doomed to fail.

Australian analysts said CISA was well known for grandstanding and it was unlikely its 119 members, which accounted for 90 per cent of China's steel output, would comply with the boycott call .

Trade Minister Simon Crean said on Tuesday that the proposed boycott would not work.

"I can't see it generating any sort of support," Mine Life senior resource analyst Gavin Wendt said.

The Securities Times on Tuesday quoted CISA secretary-general Shan Shanghua as saying China's iron ore stockpile of about 75 million tonnes was more than enough for its steel mills to operate normally over the proposed boycott period.

However, Mr Wendt said the stockpile was "pretty skinny".

If the boycott proceeds, it would not even have a substantial effect on Rio Tinto and BHP Billiton, he said.

Analysts said CISA's reputation was dented last year when it unsuccessfully led annual iron ore price negotiations for the first time.

Talks subsequently collapsed, forcing many steel mills to buy from the generally more expensive spot market.

CISA's sabre-rattling on Monday follows announcements late last month by BHP Billiton and Vale that they had reached short-term iron ore sales contracts with a significant amount of Asian steel mills - effectively ending a 40-year old annual pricing system.

Analysts said already high spot prices would rise even further if Chinese steel mills reduced their iron ore stockpiles to nil under the proposed boycott.

Mr Wendt said CISA members would be better off "locking in some iron ore now".

"In two months time, prices are likely to be even higher than they are now," he said.

"You're probably going to see what happened last year, which is the Japanese will settle, the Chinese will spit the dummy, take their bat and ball and go home, and prices will rise in the interim."

Separately, Chinese disquiet is expected to mount over the proposed iron ore production merger of Rio Tinto and BHP Billiton's Western Australian operations.

The Australian Competition and Consumer Commission last week extended its investigation into the planned tie-up by a month until the end of May while it seeks feedback from affected parties.

It is understood Chinese customers will be able to make submissions.

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