The World Steel Association (Worldsteel) today sought a probe against the global mining giants--Rio Tinto, BHP Billiton and Vale--by competent competition authorities for their alleged monopolistic trade practices.
The demand from the global steel body comes after these mining companies effected a short-term iron ore supply contact with various steel producers across the globe as against the previous practice of entering into annual arrangement.
"There is now an urgent need for the competition authorities around the world to examine the market for iron ore, and the market behaviour of the three companies who dominate the business.
"They need to decide whether the uncompetitive nature of this business is in public interest given that steel is used in virtually every aspect of the modern economy," World Steel Association director-general Ian Christmas said in an emailed statement from Brussels.
The Association further said these three mining majors had a total share of the sea-borne iron ore market of 68.5 per cent in 2008 even as the world witnessed a global demand crunch and economic crises in the later part of that year.
"The ability of these mining companies to impose this change, which maximises their short-run profits, comes from an uncompetitive market for sea-borne iron ore. Just three companies dominate this business with the major Brazilian supplier (Vale) having a virtual monopoly in the Atlantic basin and the two major Australian companies having a virtual monopoly in the Pacific basin," he added.
He added the two Australian firms--Rio Tinto and BHP Billiton, now propose to merge their western Australian mining which will make the market further uncompetitive.
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Industry observers say short-term contracts for iron ore supply effected by these firms gives flexibility to the pricing mechanism to both the mining firms and their buyers-- steel companies. Iron ore is a vital input in steel-making.
Worldsteel, however, said "the steel industry expressed renewed concern at the inevitable consequences of imposed pricing settlements and possible abuse of dominant positions by the main iron ore suppliers. The steel industry believes that imposed iron ore contracts will have negative impacts on the recovery of the global economy."
According to observers, mining firms are entering into supply contracts with steelmakers for the April-June quarter at about $110-120 a tonne, which is an 80 to 100 per cent increase from the levels of 2009-10 annual contracts.
"The benchmark system may have imperfections but it has the merit of supporting long-term relationships between steel industry and raw materials suppliers leading to beneficial medium-term investment decisions," Christmas of Worldsteel said.