Companies

Rizhao Steel fined $114m for breaching long-term contract

By Song Jingli (chinadaily.com.cn)
Updated: 2010-08-19 17:35

Chinese steel mill Rizhao Steel Holding Group Co Ltd was fined $114 million Monday by an arbitrator in Austalia for breach of a long-term supply contract with Australian iron ore company Mount Gibson Iron Ltd, the Economic Information Daily said.

Rizhao Steel is one of the first Chinese companies to be fined because of breaching contract. The company disagreed with the arbitrator and said it failed to perform the contract due to force majeure, according to the paper.

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Rizhao began to buy iron ore from Mount Gibson under a short-term contract in late 2006. In July 2007, the two companies signed a 15-year long-term contract. Under the contract, Rizhao could buy up to 1.5 million tons of iron ore each year from Mount Gibson's mine in Koolan Island, said caing.com.

But Rizhao stopped buying iron ore from Mount Gibson in October 2008 because contract prices were much higher than the spot prices then. Other mills like Baosteel also terminated long-term contracts and turned to the spot markets.

Mount Gibson had to find other buyers of their iron ore and had to sell at quite lower prices, ushering in losses.

Experts warned that this arbitration may trigger a series of such cases. And the debates may focus on whether the financial crisis can be treated as force majeure, which means irresistible forces such as natural disasters, the Economic Information Daily said.