China Gives In to Rio Tinto, Vale, BHP: Report

NEW YORK (TheStreet) -- The Chinese steel industry has reportedly capitulated in price negotiations with the world's three biggest iron-ore miners -- a turn of events that, if true, would effectively result in a price cut of 33%, much less than the 45% and even 50% the Chinese had publicly desired.

According to a report in The Wall Street Journal, published Friday, China's steel makers have essentially agreed to focus on negotiations for next year's ore contracts.

Annually, the world's biggest ore miners -- BHP Billiton(BHP), Vale(VALE) and Rio Tinto(RTP) -- make deals with steelmakers in China, Japan and Korea that cover iron-ore prices from April to April. China, which now produces almost as much steel as the rest of the world combined, had been holding out like a high-round draft pick, attempting to use its sheer size and importance to wrest steep price concessions from the ore extractors.

Earlier this year, the miners had inked deals with Japanese and Korean steel companies that cut ore prices by around 33% from the year-ago contracts.

China, however, had wanted more. (As talks dragged on, the miners and China's steelmakers traded under an informal agreement that pegged ore prices to the deals already struck with Japan and Korea.) Tensions between the Chinese and Rio Tinto, which represented the three miners in the talks, grew far more heated than normal, culminating in the arrest in China of several Rio Tinto executives on charges of industrial espionage and bribery.

Many industry observers interpreted the arrests as retribution on the part of China for Rio Tinto's spurning of Chinalco, the government-run aluminum concern, which had agreed to invest billions in the debt-addled Rio. Instead, Rio chose to create a joint venture with BHP.