Why Is BHP Being Accused of Bribery and Price Manipulation?
Historically, as much as 80 percent of iron ore was traded directly between miners and users, according to a report from Mining Journal. For a long time, this trade was focused around the United States and Europe, but beginning in the late 1980s, demand for iron ore from Japanese steelmakers became so great that the locus of control for the market shifted to Asia.
Negotiations between the world’s three major producers of iron ore — Australian-based BHP Billiton (NYSE:BHP), British-Australian Rio Tinto Group (NYSE:RIO), and Brazilian multinational Vale S.A. (NYSE:VALE) — and companies like Nippon Steel Corp. began to set the tone for prices around the world.
But come the 2000s, the Japanese economy was generally stagnating and China, with seemingly insatiable demand and limitless economic growth potential, became the new magnate for iron ore producers. The emergence of Shanghai Baosteel Group Corp., a state-owned steelmaker and one of the largest in the world, helped make China’s voice in price negotiations not just heard but dominant.
Up until this point, iron ore prices were fairly slow to change, with prices shifting only after long negotiations. However, in 2008, there were two major developments that helped define the current iron ore prices and the way iron ore is priced.