Iron ore supply tightens in Australia

Asian steelmakers pressed for higher iron ore prices

By Dave Hannon -- Purchasing, 9/5/2008 2:04:00 PM

The supply of iron ore coming out of Australia is expected to tighten quickly after both BHP Billiton and Rio Tinto announced supply problems there.

Rio Tinto earlier this week declared force majeure on iron ore shipments after an accident involving a rail car damaged an ore dumper at an Australian port. Reuters reports that the incident occurred on August 31 at the company's Cape Lambert export terminal, where Rio Tinto operates two dumpers. Another three dumpers operate from the company's nearby Dampier terminal.

And today reports surfaced saying BHP Billiton has suspended its West Australian iron ore operations after a second fatal accident in two weeks, halting output from mines supplying about 14% of annual global exports. “All our iron ore operations in Western Australia are suspended except for essential services,” Samantha Evans, a Melbourne-based spokeswoman for BHP, told Bloomberg . Mining stopped last night and it's too early to say whether BHP will declare force majeure, allowing it to miss deliveries, Evans said.

 All of this comes as Brazilian miner Vale pushes an additional iron ore price hike in the range of 13-20% with Chinese steelmakers, who are resisting the hike. Reuters says the recent fall in freight rates, which has made long-haul Brazilian shipments relatively cheaper compared to nearby Australian cargoes, gave Vale the opening it needed to push for the additional increase.

“It sounds ridiculous,” Li Guanghong, iron ore manager for Rizhao Iron & Steel Co., a Shandong-based steelmaker, told Bloomberg. “Chinese steelmakers won't agree to their request.”

See also: Has BHP takeover of Rio Tinto started to dim?