Iron ore boycott will fail: analysts

(AAP) - A call by China's top steel industry body for a two-month boycott of iron ore produced by BHP Billiton Ltd, Rio Tinto Ltd and Brazil's Vale is grandstanding and doomed to fail, analysts say.

Reports from China 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 junior Australian iron ore miners - seen as an alternative to the mining
giants - soared in the wake of the news.
BC Iron Ltd jumped 13 cents, or 7.83 per cent, to $1.79, Atlas Iron Ltd rose 18
cents, or 6.98 per cent, to $2.76, and Fortescue Metals Group Ltd closed seven cents
higher at $5.04.
Australian analysts said CISA was well known for grandstanding and it was unlikely
that 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 fail.
Mine Life Pty Ltd senior resource analyst Gavin Wendt told AAP: "I can't see it
generating any sort of support".
CISA's sabre-rattling on Monday followed announcements late last month by BHP
Billiton and Vale that they had reached short-term iron ore sales contracts with a
significant number of Asian steel mills.
This effectively ended a 40-year-old annual pricing system and raised the ire of
some Chinese steel mills.
CISA said in the China Daily on Friday that it would hold an emergency meeting on
the shift to short-term pricing.
The same article also quoted Jiangsu Shagang Group Co chairman Shen Wenrong as
saying: "We have no options. We have to accept it, although we can't afford it".
Analysts said already high spot prices would rise even further should Chinese steel
mills reduce their iron ore stockpiles to nil under the proposed boycott.
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 described the stockpile as "pretty skinny" and 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," Mr
Wendt 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."
Mr Wendt said that even if the boycott proceeds, it will not substantially affect
Rio Tinto and BHP Billiton.
Analysts said CISA's reputation was dented last year when it unsuccessfully led
annual iron ore price negotiations for the first time.
Talks collapsed, forcing many steel mills to buy from the generally more expensive
spot market.
Separately, Chinese disquiet is expected to mount over the proposed iron ore
production merger of Rio Tinto and BHP Billiton's operations in Western Australia.
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.
China Daily said on Sunday that the World Steel Association had asked regulators to
probe an "oligopoly" among iron ore miners.
The European steel industry association, Eurofer, is opposed to the Rio Tinto/BHP
Billiton iron ore merger.
Eurofer last month said it was outraged by massive iron ore price increases this
year and had notified the European Commission on possible anti-competitive practices
and abuse of dominant position by the main suppliers of the bulk commodity.