Rio Tinto¡¯s Hardball Tactics Garner Faceless Doll, China Crisis

Rio Tinto Group is known for playing hardball when negotiating iron-ore prices, prompting Japanese steelmakers to present the company with a faceless doll as a tribute during one round of talks.

¡°The gift signaled how tough Rio had played the negotiations,¡± Doug Ritchie, the London-based company¡¯s global head of strategy, said in May. Now Rio faces higher stakes in China, which overtook Japan in 2003 as the world¡¯s biggest buyer of iron ore, and this month arrested four of the company¡¯s executives as annual price talks with Chinese mills stalled.

China, destination for half of the $52 billion global seaborne iron ore trade, has accused four members of Rio¡¯s iron ore team in Shanghai, including Australian Stern Hu, of stealing state secrets. Hu¡¯s detention by Chinese security officials is related to a criminal probe into the talks, Australia¡¯s foreign minister Stephen Smith said this month.

¡°What they appear to be wanting to do, in classic Stalinist fashion, is discipline the steel industry and intimidate their negotiating partners at the same time,¡± said Paul Monk, founder and director of Austhink Consulting in Melbourne, and former China analysis head at Australia¡¯s Defence Intelligence Agency. ¡°From a point of view of a state that is trying to establish its credentials in the market economy of the world, it is a really stupid thing to have done.¡±

China has been ¡°chagrined¡± by being on the losing end of price talks and the collapse of a proposed investment in Rio, said Austhink¡¯s Monk. China has had to absorb six years of gains in contract prices and so far this year hasn¡¯t been able to win from Rio a bigger reduction than the 33 percent iron ore price cut agreed by other Asian mills.

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