Australian PM faces storm in China over commodity prices.
Updated
Australian commodity prices risk becoming another diplomatic battle ground in China for Prime Minister Kevin Rudd. But with reports circulating that Chinese interests might seek to take a shareholding in mining giant BHP, life just got a whole lot more complicated.
Presenter: Karon Snowdon
Speaker: Peter Arden resources analyst with Ord Minett; Australian Prime Minister Kevin Rudd.
SNOWDON: Kevin Rudd faced some criticism on his arrival in China for his comments on Tibet and human rights. He might have to brace himself if not for more criticism at least for more questions. Not over Tibet but the price Australian companies are charging their Chinese customers for essential commodities like iron ore and coal. And he might have some questions of his own about Chinese negotiating tactics. Resources Analyst with Hartleys Limited, Andrew Muir says Mr. Rudd could be put on the spot.
MUIR: It wouldn't surprise me if it's discussed. But personally I'd prefer to see the sovereign aspect taken out of it and left purely to market forces.
SNOWDON: Market forces are favouring the sellers. And Chinese buyers are complaining, going so far as to blacklist Australian resource companies on the spot market recently. Although he's held meetings with both Rio Tinto and BHP Billiton, Kevin Rudd won't be getting between them and their Chinese customers.
RUDD: As I say to the Chinese, I say to the Australian resource majors, these are ultimately commercial matters. My job is to ensure that it is an overall framework of stability of supply from Australia to this country and other market's long term development needs. I think my job as the Australian Prime Minister is to defend the Australian national interest and the Australian national economic interest, and I'll make no apology for that while I'm here or elsewhere in the world.
SNOWDON: BHP-Billiton has just announced it's achieved a price rise of more than two hundred percent for coal used in steel making to some of its major Asian customers, Japan and South Korea. That means the highest quality coking coal will command 300 dollars a ton compared to 98 dollars last year. Iron ore prices are entering their sixth record year.
China can't avoid paying the same prices but its concern extended to it buying a nine percent stake in Rio Tinto to try to stave off a takeover by BHP and a near monopoly on prices if it succeeded. Now a national Australian newspaper claims through unnamed sources that Chinese interests are planning to also buy shares in BHP.
Kevin Rudd in Beijing was asked for his thoughts.
RUDD: I would think that any significant foreign investment application should be considered by the firm and taken on its merits. And secondly I'd say that there's a whole bunch of sovereign wealth funds, state owned enterprises from all around the world.
A whole bunch of governments around the world are assessing how you deal with capital flows from such entities. Our approach is still one of being open to foreign investment flows, each project should be considered on its merits and consistent with the guidelines we've enunciated.
SNOWDON: It's a different time, a different market and a different Prime Minister. Former Australian Prime Minister John Howard made a lot of political capital out of his active role in encouraging what was then the biggest export deal with China when Australia secured its first natural gas contract.
These days the idea that China however would buy into BHP, clouds rather than clarifies China's intentions, according to resources analyst with Ord Minett in Melbourne, Peter Arden.
ARDEN: It just seems odd to me that at a time when they've publicly said they're not happy about the merger of BHP - BHP and Rio sorry by you know, advocating that they should have a big stake in BHP, they're more or less saying "We like BHP's strategy. We think you know, BHP and Rio's a really sensible thing".
They're almost supporting it, they're voting in favour of it by buying into it, it seems to me.
