BRM 0.00% $2.53 brockman resources limited

when will the fire be lit?

  1. 9,438 Posts.
    With iron ore prices likely to rise 10%+ and the $Au falling we could see a swift uplift for the juniors that have realistic plans for production.

    From Fairfax - The Trading Room

    Battle for Pilbara iron ore expected to heat up in 2010


    December 18 2009, 11:32AM

    The Pilbara region of Western Australia swelters for much of the year, but that's nothing compared to the heat being generated in the battle for the iron ore it contains.

    The tussle between miners and big Chinese buyers of Western Australia's iron ore reached a new intensity in 2009 and 2010 looks set to get even tougher.

    The major producers - BHP Billiton Ltd and Rio Tinto Ltd - dominate the region, but next year their influence will be under attack.

    Via the deep pockets of its state-owned companies China has sought to increase its stake in the region.

    An arm of its biggest investment company is spending billions on Australian mines.

    Chinese steel firms are by far the dominant buyers of Pilbara iron ore, and the Asian nation appears itching for a chance to use its market power to extract better deals.

    China has already indicated it plans to merge its big steel mills in 2010, to increase their bargaining power when buying the ore.

    It has criticised Rio Tinto and BHP for what it claims is near monopolistic market power to set prices, and has hinted it will not let the situation continue unchallenged.

    On the domestic front the WA government is also making things tougher on the big miners, wanting them to pay more in royalties.

    Iron ore juniors are trying to gnaw away at their dominance, with plans to jointly create new rail lines and ports in the region, increasing competition.

    A pending legal decision could allow smaller operators to access rail lines owned by the majors, which transport the ore.

    Stakes are high in the bid to feed the insatiable appetite China has for iron ore and BHP and Rio show no signs of giving in without a fight.

    A $US116 billion ($A127.6 billion) joint venture of the Pilbara iron ore operations of BHP and Rio Tinto, signed off by the companies in December, is the biggest salvo fired back so far.

    The deal has angered steel makers across the world and is awaiting approval from regulators in Europe, China and elsewhere.

    Despite company assurances to the contrary, steel makers fear it will lead to abuses of market power.

    In October BHP struck another blow against China's Pilbara plans.

    A $204 million takeover bid for iron ore explorer United Minerals Corporation NL BHP was made on condition the smaller company abandon plans to sell a key holding to to a Chinese company.

    A bid by a Chinese government-owned company to take a $US19.5 billion stake in Rio Tinto Ltd was abandoned by the Australian company in June.

    The deal would have been China's largest ever investment in a foreign company and the loss of face stung the Asian giant.

    Rio Tinto is the world's second largest iron ore producer, after Brazilian giant Vale.

    Chinese mills attempted to secure iron ore cheaply in 2009 but were ignored, leaving many to pay more than competitors elsewhere.

    Payback from Chinese authorities came on several fronts.

    Australians were vilified on official news websites, with the failure of the Rio Tinto deal lumped together with a decision by Australia's government to grant a visa to Uighur activist Rebiya Kadeer, seen as a terrorist in China.

    In an extraordinary turn of events Rio Tinto's chief iron ore negotiator in China, Stern Hu, was locked up on spy charges, later downgraded.

    Early indications are that next year China will continue its campaign to pressure miners.

    In response to questions from AAP, Australia's Resources and Energy Minister Martin Ferguson said market principles should drive trade between the countries and that he thought disagreements over iron ore pricing would eventually be overcome.

    "I am confident that recent friction in negotiations will not detract from the mutually beneficial long-term trading relationship between Australia and its resource customers," Mr Ferguson said.

    "All relationships will have their ups and downs," he said in a statement.

    Bell Potter Securities client adviser Chris Kimber said Chinese mills relied on iron ore, and ultimately would have to put up with rising prices no matter how much they hated it.

    "There were plenty of headlines and whingeing, but it has made no difference and 12 months later after lots of politics, apart from Stern Hu, no-one has suffered," Mr Kimber said.

    "They (steel mills) will complain, and that will be part of the politics, keep complaining to see what you can do, but it won't stop the prices going up," he said.

    Top economist and former Australian ambassador to China Ross Garnaut said the issues that plagued iron ore price talks in 2009 will change forever the negotiating system for the mineral.

    Many agree the events of 2009 mean the iron ore benchmark system will be abandoned in favour of more flexible pricing, with further moves in that direction in 2010.

    The benchmark system involves major iron ore producers striking a deal with a key steel mill and using that price as the standard at which other buyers must accept.

    In 2009 the decades-old system failed for the first time, with Chinese firms demanding terms far more generous than steel mills in other countries.

    Negotiations for the next round of negotiations begin late December, and it remains to be seen what the outcome will be.

    By Xavier La Canna
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