It'd be a dull world if General Motors and mining giant Rio Tinto
Rio is expecting to receive $19.5 billion from Aluminum Corp. of China
The reason: The two companies have yet to receive an OK for their deal from Australia's Foreign Investment Review Board. If the deal is blessed, it would provide Rio Tinto with the funds it needs to repay a portion of the $40 billion loan it took two years ago, when it bested Alcoa
At the same time, Rio Tinto is working to complete a round of benchmark iron ore price negotiations with its Asian customers. And while it's making steady progress with Japanese, Taiwanese, and South Korean steelmakers, that still leaves much of the biggest market -- China -- unsigned.
Rio Tinto, one of the world's top three ore producers, along with Australia's BHP Billiton
Last year, with commodities roaring, BHP and Rio Tinto managed to obtain 96% price increases from their Asian customers. This year, Rio started things off with a 33% reduction in its contract price with Japan's Nippon Steel. Over the weekend, however, the China Iron & Steel Association rejected the terms arrived at by Rio Tinto and Nippon. It appears that they want at least a 40% reduction.
In the final analysis, it just may be that a constantly changing spot market will now prevail over the traditional benchmark system. The difficulty for the miners is that it would be tough to lose the certainty of contracts with their largest market. And the Chinese would have problems obtaining ore of the quality produced by the big three.
While Rio Tinto is providing a degree of entertainment, it's also appropriate for Fools to realize that the company's shares have more than tripled since late 2008. That alone makes it worth watching.
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