Iron Ore Price Shoots Up Amid China Crackdown

Submitted by Jim Thesiger on 16 July, 2009 - 04:41

The iron ore price in the spot market have seen a rise of 10 percent despite the crisis regarding the China crackdown over Rio Tinto (RIO) executives is still making the headlines in the corporate world. The crisis started on July 5th when the Chinese authority arrested Stern Hu, a high official of Rio Tinto who was operating as the chief negotiator for iron ore here in China as the country claims he was involved in corruption, bribery and spying.

The recent rise in the iron ore price clearly reveals that the spy issue was not having much influence over the market. Rio Tinto authority on Wednesday stated that the climb in its sales on the last quarter was more than what was expected. It is assumed that the surge in the iron ore market was motivated by the recent steel production recovery where China played a key role. The weather also went in favour of Rio Tinto in the June quarter where in March the production took a hit due to the bad weather.

Despite Rio Tinto shares saw a rise of 2 percent taking the stock price to $50.08, Tom Albanese, the Managing Director of the company remained cautious as the Aluminium market was still going through difficult time. According to Mr. Albanese, the Aluminium market was still at a high risk and the division suffered a blow in the last quarter.

The $38 billion US dollar worth of Alcan acquisition and drop in the Aluminium price are considered as the key reasons for which Rio was forced to go for the $18 billion US dollar deal with Chinalco, a state owned Chinese company. However, the recent announcement of the BHP Billiton (BHP)-Rio Tinto combined iron ore operation turned as a major concern for China as it might give more power to the miners as far as the pricing is concerned. It is assumed that this can be a reason for China to take the hard-line in the iron ore industry.

Rio Tinto managed to boost its iron ore production from Pilbara mines in the last quarter reaching 53 million tonnes where the company had its own share of 42 million. It is to be mentioned that the production in the June quarter was 47 percent higher comparing with the earlier quarter where the bad weather hindered the production severely.