Because of Rio’s last-minute change of heart, a 19.5 billion U.S. dollar agreement between Aluminum Corporation of China (Chinalco) and Australian mining firm Rio Tinto unexpectedly failed.

Instead, Rio Tinto cut a deal with BHP Billiton Ltd, the world’s second largest mining company, to create an iron ore joint venture in Western Australia’s Pilbara region.

Chinalco was once called a “white knight” by a grateful Rio when the Chinese national aluminium manufacturer offered a 19.5 billion dollar investment to the debt-ridden mining concern amid the economic slump.

But Chinalco was quickly dumped when the mining market picked up. The perfidy of Rio, the world’s third largest mining company, seems somewhere between short-sightedness and possible political prejudice.

There is an old Chinese saying: “A gentlemen’s agreement is beyond the letter.” Honesty is the blood of business behavior.

When Rio was trapped in its 38 billion dollar debt earlier this year, it was Chinalco that lent a helping hand by offering an investment to halve the company’s debt.

Last December, after BHP Billiton dropped a takeover of Rio, the company’s share price hit bottom at 32 U.S. dollars on the Australian stock market. However, the price soon doubled, partly due to the world’s commodities markets’ recovery and partly due to Chinalco’s announcement of an alliance with Rio.

Yet quite unexpectedly, Rio quickly announced a breakup once the market recovered and the share price went up — an act of “kicking down the ladder.”China’s fast economic development has brought up the need for commodities such as iron ore, which has greatly benefited Australia and Rio, the main iron ore producer.

The union of a mining producer and a mining importer would pave the way for smooth trade. To break up with a potentially strong strategic partner such as Chinalco is a big loss for Rio from a long-term perspective.

A joint mining project between the world’s No. 2 and No. 3 iron ore miners BHP and Rio also aroused objections from the world’s steel makers and antitrust regulators.

European opposition last year forced BHP to drop a 68 billion dollar attempt to take over Rio Tinto. This time, the World Steel Association, the European steel industry federation Eurofer and China’s steel industry group also voiced objections to the merger.

The change of heart also has a shadow of political prejudice. An Australian analyst pointed out that the deal was actually victim of a new form of “Cold War” thinking instead of a result of market games.

Chinese enterprises recently have been actively investing in Australia — a normal market behavior. However, some Australian politicians and media have been wantonly shouting the so-called “China threat” and putting pressure on the government to refrain from cooperating with China.

This kind of prejudice will not only stall the pace of economic cooperation between China and Australia, but also hurt the interests of the Australian enterprises themselves.

The breakdown of the Rio deal will not arrest Chinese enterprises investing overseas. For Chinalco, the one-time failure in international trade will soon fade. But for Rio Tinto, it will take many years to conquer the lost honesty and tainted image.

According to the latest data from Mysteel, China’s daily crude steel turnout continued to climb in late May, increasing about 74,000 tons over mid-May.

The data show that the country’s daily crude steel output averaged 1.485 million tons in the last ten days of May. The figure could be annualized to 544 million tons this year if the momentum is kept, compared to about 500 million tons last year.

China’s Ministry of Industry and Information Technology earlier pointed out that in the face of steel industry’s severe overcapacity, the domestic steel market only needs an annual output of 470 million tons to keep the market balance this year.

The country’s daily output of crude steel maintained at around 1.4 million tons in March-April, but started a sharp rise since May and has recorded an average level of 1.48 million tons.

The home steel market has been rallying up for seven straight weeks, providing the back for the increase of steel output.

Prices of steel products such as building steels, medium plate, and hot-rolled steel coils all rose recently. Meanwhile, large steel enterprises also adjusted up their ex-factory prices.

Because the steel production continued to be expansion, some experts worry that it may press down steel prices again.

The China Iron and Steel group said Tuesday it opposes the iron ore joint venture between mining giants Rio Tinto and BHP Billiton.

“The joint venture agreement has a strong monopolistic color and Chinese steel mills will resolutely oppose the agreement,” the CISA said in a statement on its website.

“The iron ore trade is gradually advancing in the direction of monopoly,” the association said. The joint venture has a direct bearing on the interests of Chinese steel plants as China is the biggest buyer of Australian iron ore, it added.

China should have a say in the iron ore trade, especially in Asia, according to the statement.

The CISA said it will allow no market speculation on iron ore trade on the domestic market. It also urged regulators to revoke the licenses of these iron ore importers which were found to have engaged in speculation.

Rio Tinto scrapped a proposed 19.5 billion U.S. dollars of investment by Aluminum Corp. of China, or Chinalco, on Friday.

The world’s third-largest mining company has announced a joint venture with BHP Billiton, the world’s second-largest. In the agreement, BHP would pay Rio Tinto 5.8 billion U.S. dollars to jointly run iron ore resources of both companies in west Australia.

Mei Xinyu, an economist with the Ministry of Commerce, told Xinhua Monday that China should closely watch the joint venture process and be ready to work with other countries to curb market manipulation when necessary, with the help of anti-monopoly law.

Rio Tinto agreed to a 30 percent price cut with its Japanese and Korean customers, but the Chinese group said even that level for the buying year that begins June 30 would result in losses for China’s mills.

SHANGHAI, June 8 (Reuters) – China’s daily crude steel production in late May reached 1.49 million tonnes, industry consultancy website Mysteel said on Monday, citing official statistics.

The figure is equal to an annual production of 544 million tonnes of crude steel, according to Reuters calculations. That compares with about 500 million tonnes produced in 2008.

China has been urging its steel mills to curb production, in an apparent attempt to stablise domestic steel prices and to hold a better position in iron ore term negotiations with miners including BHP Billiton (BHP.AX)(BLT.L), Rio Tinto (RIO.AX)(RIO.L) and Vale (VALE5.SA).

The government wants to cap this year’s total steel output at 460 million tonnes, 8 percent lower than last year, but it has so far been unable to rein in the sector.

China’s monthly iron ore import volume has been on a record-breaking run, reaching an all-time high of 57 million tonnes in April, and stockpiles at major ports have soared beyond 75 million tonnes, according to Chinica Shipbrokers Ltd, up around a quarter since the beginning of the year.

With steel output showing little sign of slowing down despite low demand, analysts are predicting a rapid rise in inventories over the second half of the year.

Yet some of the big players are still putting new capacity into operation.

China’s Shougang Group, parent of Shougang Iron and Steel (000959.SZ) and China’s sixth-largest steel maker, opened its new steel mill, which has a design capacity of 4.85 million tonnes a year, in late May.

In April, Angang Steel Co Ltd (000898.SZ), another flagship mill in China, started production in a new blast furnace that will add more than 3 million tonnes of pig iron ore production.

But the bigger problem appears to be the smaller mills, and the government has been forced to step in with punitive action.

Last month, the Ministry of Industry and Information Technology urged commercial banks to cut off credit to steel enterprises that are “blindly expanding in disregard of the market”.

It said the industry has been put under intense pressure as a result of excessive iron ore import growth and an oversupplied domestic market.

But while calls to curb output might be heeded by the big firms, smaller operators are still unlikely to follow suit, said Sun Jiqing, analyst with China’s Dongxing Securities.

“The effects of output restrictions will be limited, with domestic investment stimulated by government policy and high demand for construction materials, and you also have local governments chasing GDP, jobs and revenues during the world financial crisis,” he said in a note. (Reporting by Alfred Cang and Jacqueline Wong; Editing by Michael Urquhart)

China’s steel products market has seen remarkable on-year inventory growth at the peak season of sales, signaling demand hasn’t improved substantially or outperformed anticipation.

According to statistics of steel products inventory in some cities given by My Steel, a website offering complete information about China’s steel industry, the inventory of hot-rolled plates increased 42 percent on year by the end of May; that of medium and heavy plates, up 26 percent; and that of construction steels, up 10 percent.

Statistics released by China Iron & Steel Association show that China’s apparent consumption of steel products reached 170.65 million tons in the first four months of this year, up 10.95 million tons or 6.86 percent over the same period of last year.

According to Xu Xiangchun, analyst with My Steel, the over 10 million-ton growth of steel products inventory reflects that the new production capacity hasn’t transformed into consumption, thus leading to more inventory.

The domestic price of steel products has kept climbing for six weeks, particular after the agreement of the benchmark price of iron ore in international market. Domestic major steel enterprises have lifted ex-factory prices of their products by 150-350 yuan per ton.

Analysts hold the upward adjustment of steel price will ease pressures of losses, but the possibility of price plunge cannot be ruled out if the inventory keeps rising.

Local governments are adding support to steel enterprises now. For example, the city of Wuhan, central China’s Hunan province, will offer 20 yuan per ton subsidy for direct purchase of Wuhan Iron and Steel (Group) Corp.’s products.

China’s nine major nonferrous metal companies are planning to submit an application to the Ministry of Commerce (MOC) for anti-dumping investigation into sulphuric acid imported from Japan and the Republic of Korea (ROK). Included are Tongling Nonferrous Metals Group Co., Jiangxi Copper Co., Yunnan Copper Co. and Zhuzhou Smelter Group Co. .

A source with Tongling Nonferrous Metals Group disclosed that sulphuric acid prices in China have kept downward trend due to the slump of the domestic chemical industry and cheaper imports from Japan and ROK.

China’s sulphuric acid prices have plunged from the peak of above 2,000 yuan/ton last year to less than 150 yuan/ton.

Meanwhile, the dump of sulphuric acid from the aforesaid two countries further pressed down the domestic product prices.

Customs data show that China imported 1.14 million tons of sulphuric acid in January-April, surging 68.3 percent on year, including 1.11 million tons or 97.4 percent of the total from Japan and South Korea. However, China’s sulphuric acid exports in this period came to 883 tons, down 99.4 percent from the year earlier.

The home nonferrous metal companies, with their byproduct of sulphuric acid, hold that such large imports are far from normal.

The cost price of sulphuric acid usually stands at 100 yuan/ton, or about 14.7 U.S. dollars/ton. However, the CIF price of the product from Japan or South Korea to China only stays at 3-10 U.S. dollars/ton, even lower than the freight cost of 15-18 U.S dollars/ton.

Currently, selling prices of sulphuric acid in the above two countries reach 30-50 U.S. dollars/ton.

A source disclosed that the Chinese metal firms would submit the request to MOC as soon as they finish signing the request.

Five large Chinese lead and zinc enterprises earlier submitted a request to MOC for cutting tariff on fertilizer export in a bid to relieve excessive oversupply of sulfuric acid on the domestic market.

They are Zhuzhou Smelter Group Co., Shenzhen Zhongjin Lingnan Nonfemet Co., Henan Yuguang Gold & Lead Co., and Shui Kou Shan Nonferrous Metals Group, and Anyang Yuguang Gold & Lead Nonferrous Metals Co.

As 70 percent of the domestic industrial sulfuric acid is used for producing phosphate and compound fertilizers, the fertilizer sector’s performance determines the price of sulfuric acid.

The Chinese government started to levy special export tariff on fertilizers from April 1, 2008 (export tariff of 35 percent, special tariff of 100 percent). It later adjusted the tariff to 45 percent for slack season, and 110 percent for peak season as of December 1, 2008.

Such move directly led to glut of fertilizer on the domestic market.

Statistics from the China Phosphate Fertilizer Industry Association show that China’s annual diammonium phosphate and monoammonium phosphate capacities now reach 15 million tons and 16 million tons, respectively, higher than the domestic demand of 5.5 million tons and 6.5 million tons, respectively.

The ongoing iron ore price negotiation between China Iron and Steel Association (CISA) and Rio Tinto is scheduled for conclusion this month, according to Luo Bingsheng, vice chairman of CISA.

Rio Tinto announced Tuesday it already had reached an agreement on iron ore price cut with Taiwan’s leading steel makers China Steel Corporation and Dragon Steel Corporation since its successful deals with the Japanese and South Korean steel producers.

Currently, almost all steel manufacturers in Asian region except for those in China have inked agreements on new iron ore prices.

Luo urged a fall of iron ore contractual prices to the level of 2007 or a drop of at least 40 percent.

“The Chinese iron ore market will be oversupplied by more than 200 million tons this year if steel enterprises and traders continue to purchase iron ore from abroad,” he said.

A survey shows that iron ore stocks at China’s major ports have surpassed 70 million tons, including a large amount for steel enterprises such as Baosteel and Sinosteel.

According to Hu Yanping, an analyst with Umetal, if CISA follows the price cut reached between Rio Tinto and the Japan’s Nippon Steel Corp., the Chinese steel enterprises’ production cost will fall 128 yuan/ton without regard to freight and import from Brazil, compared to a drop of 268 yuan/ton given that CISA achieves its target of a 42 percent price cut for fine ore and a 45 percent price cut for lump ore.

A senior manager with Heibei Iron & Steel Group noted that iron ore prices still have room to dip.

Officials with Shougang Group and Wuhan Iron and Steel Group held that the current iron ore prices still hover at a high level and fail to reflect the actual market demand.

China’s crude steel turnout increased about 80,000 tons from early May to mid-May, holding onto the persistent growth since late April.

The report estimated that the country’s crude steel output reached 14.78 million tons in mid-May, or daily output of 1.47 million tons, compared to daily steel output of 1.41 million tons in late April and 1.47 million tons early May.

An analyst with Umetal noted that the drop of stocks and sharp increase of investments in fixed assets had served to boost steel demand, especially that for steel screws and wire rod.

The domestic steel market rebounded in early April, with prices of major steel products on the rise.

Currently, the prices of 16-25mm steel screws (grade 2) and 4.75mm hot-rolled steel coils in Shanghai stands at 3,480 yuan/ton and 3,450 yuan/ton, respectively, accumulatively up 380 yuan/ton and 350 yuan/ton over early April.

Insiders predict that China’s crude steel turnout will holding at a high level in late May, adding that its steel turnout in May is expected to make the monthly record for this year.

Perhaps mindful of the environmental toll taken by its booming, export-led economic growth over the last 30 years, China is now working on a set of green guidelines for Chinese companies involved in projects overseas.

The Ministry of Environmental Protection and the Ministry of Commerce have drafted a set of mandatory environmental measures that would apply to Chinese outbound investors, the China Daily reports. According to the report, the new rules would require Chinese companies to conduct environmental impact reviews on overseas projects, take measures to protect the environment on all projects (such as including facilities for sewage and waste treatment), abide by China’s international environmental treaties and pay for any environmental damage that results from their projects.

The measures would apparently prevent companies from shopping around to do business in places with the most lax environmental regulations.

“In cases where China’s environmental standards are higher than the host countries’, Chinese investors will follow our standards,” Zhi Yingbiao, one of the drafters of the rules, told the China Daily. “This way, China can also help with environmental management in less developed countries.”

By way of comparison, the U.S. generally requires only that its companies adhere to the local laws in the jurisdictions where they operate.

The report noted that China’s government has not received any formal complaints of environmental damage caused by Chinese direct investment overseas. However, environmentalists have warned about the consequences of China’s rapidly rising investments in developing countries with weak legal regimes, especially since the Chinese projects tend to focus on industries that have the potential to strain ecological resources, such as mining, oil and manufacturing.

Last year, Chinese direct investment in non-financial sectors reached $40.7 billion, an increase of 64% from 2007. In 2002, the figure was only $2.5 billion, according to the Ministry of Commerce.

While the new measures sound high-minded in spirit, China has enough trouble enforcing its laws against recalcitrant companies at home, so it’s an open question as to how it plans to supervise companies when they go overseas. The measures might also encourage Chinese companies to try and subcontract their way out of the new environmental responsibilities. And, as seen in the latest U.S.-China discussions on climate change, there are still limits to China’s willingness to curtail investment in the name of the environment.

As the last article monday said that “China’s Ministry of Commerce (MOC) began an anti-dumping investigation into grain oriented flat-rolled electrical steel imported from the United States and Russia.”

Baosteel Group Corporation and Wuhan Iron and Steel (Group) Corp., which are two major grain oriented flat-rolled electrical steel manufacturers in China, are expected to benefit from China’s anti-dumping investigation into electrical steel imported from the United States and Russia.

An investigation was also launched into subsidies for electrical steel from the United States, the MOC said in a bulletin on its website.

The investigation would cover the alleged dumping behavior and extent of under-pricing of electrical steel products from the U.S. and Russia.

The investigation would strictly follow regulations of the World Trade Organization (WTO) and domestic trade laws to protect the rights and interests of domestic industries, said MOC spokesperson Yao Jian.

Grain oriented flat-rolled electrical steel is in short supply in China, since only several large steel makers can produce such steel that demands high technology and has high added value. China imported 353,000 tons of grain oriented flat-rolled electrical steel in 2008, up 31.75 percent from the previous year.

The price of the product has spiraled down since the fourth quarter of last year, as a large amount of under-pricing grain oriented flat-rolled electrical steel entered into the Chinese market upon the slump of steel prices at home and abroad. It plunged to 20,000 yuan per ton in the first quarter of 2009 from a once record high of 40,000 yuan per ton.

China’s import of grain oriented flat-rolled electrical steel almost equals domestic production at present.

Under heavy pressure from low-price imported steel, domestic grain oriented flat-rolled electrical steel price can hardly rise, although it is predicted by CITIC Securities that China’s demand for grain oriented flat-rolled electrical steel would increase at least 20 percent in 2009.

As grain oriented flat-rolled electrical steel products contribute about 50 percent to the profits of Wuhan Iron and Steel, the steel maker would suffer a lot with price remaining low.

Previously in 1999, Wuhan Iron and Steel filed an application for anti-dumping investigation into cold rolled silicon steel imported from Russia and won the case.

Because the case has just been placed on file, we can not forecast the influence on enterprises now. Just waiting…