A SENIOR Chinese steel official has blasted Australian mining giant Rio Tinto for being "dishonest" and "improper", as their row over billions of dollars of iron ore shipments edges closer to a trade war.
The accusations, from Luo Bingsheng, executive vice-chairman of the powerful China Iron & Steel Association, followed a more personal attack from one of his senior advisers, Wu Xichun.
"Their brains are bloated and their heads are full of water," Mr Wu said, apparently referring to Rio Tinto.
Prime Minister Kevin Rudd's visit to Beijing on April 9 is now looming as a major diplomatic test, as he must pacify furious Chinese iron ore buyers while telling China's state-owned aluminium giant, Chinalco, whether it can increase its 9% stake in Rio Tinto.
Chinese steel companies have already agreed to a 65%-71% iron ore price increase with Brazilian miner Vale, on top of five years of big consecutive rises, but Rio Tinto and BHP Billiton are holding out for more.
In the case of Rio, tensions are compounded by Chinese accusations that it has failed to honour long-term contractual obligations so it can supply the iron ore spot market, where prices are more than double.
BusinessDay yesterday asked Mr Luo why China had black-balled Rio Tinto and BHP Billiton's spot-market imports, as several Australian iron ore shipments remained stranded in Chinese ports. Mr Luo appeared to single out Rio Tinto for his fury.
"The practice of this company is to stop supplying its long-term contractual obligations in order to supply the spot market," he said, from the panel of a major Beijing steel conference, through the conference's simultaneous translator.
"This is improper … The dishonesty of this company is the reason we have responded and shown our contempt."
The phrase that was translated as "dishonesty" can also translate as "untrustworthy".
Mr Luo's comments generated rousing applause from the conference room floor of Beijing's Capital Hotel.
He then said his association did not have the power to enforce an embargo by controlling import licences.
A senior Australian Government adviser, who has been following the Chinese spot-market embargo since January, said Mr Luo's comments had taken the dispute to a new level.
"That's a very high level of brinkmanship and it would indicate they are gong to take us right on," the official said.
Until now, many Australian Government officials have been anxious to play down the dispute before Mr Rudd's arrival in Beijing.
They have blamed industry associations acting independently of government departments such as the Ministry of Commerce.
Rio Tinto and BHP Billiton have not clarified how long the embargo has been in place or how many shiploads of iron ore have been affected.
But a previously unreported newsletter, Metals Bulletin, published on February 1, suggests there has been a systematic industry embargo against Rio Tinto since January.
The article quoted a CISA official as saying: "We asked the domestic steelworks at a recent meeting not to purchase iron ore from Rio, but it is not an order or an obligation."
The article quoted the unnamed CISA official as blaming Rio for failing to honour long-term contracts.
"That is why we think we need to do something to boycott it from the spot market," the unnamed official was quoted as saying.
The Metals Bulletin article also quoted iron ore traders who attended a January 29 meeting held by the China Chamber of Commerce of Metals, Minerals & Chemicals Importers & Exporters, which has the power to give import licences.
"It is not an order, but it is as good as one, because CISA and CCCMC are top industrial associations with a big say in the issuing of iron ore import licences each year," the Metals Bulletin quoted an iron ore trader as saying. "Disobedience now may lead to the loss of licence next year."
