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By CSC staff, Shanghai

According to the Sunday Times, after signing the capital injection agreement of $19.5 billion with Chinalco, Rio Tinto has also formulated an alternative plan together with international investment banks, according to which it will issue $8 billion (about £5.4 billion) of new shares, with JPMorgan, Cazenove and Credit Suisse as underwriters, if the capital injection plan is rejected.  On March 27, Rio Tinto CFO Guy Elliott made a brief statement of their "Plan B", in case Chinalco’s capital injection plan is forced to be canceled. However, at the beginning of this month, Chinalco General Manager Xiong Weiping said he had never heard any news about of a Plan B, nor had he seen any sign of the cancellation of the capital injection plan.  Rio Tinto must repay over $18 billion of bank loans at the end of 2010. In October of this year alone debt totaling $8.9 billion will be due. Naturally Rio Tinto has made an alternative plan to make sure it will be able to repay the debt.  According to the report of China Business News, Chinalco seems to be very confident in the deal with Rio Tinto. "Chinalco has no other scheme, and the capital injection will be conducted according to the early plan," said a Chinalco insider. Chinalco got the official reply on the Rio Tinto deal from German anti-monopoly supervisory department Federal Cartel Office on March 31. Chinalco General Manager Xiong Weiping emphasized the company had faith in the deal, and wouldn’t launch a second scheme, but of course it had relevant strategies for the best and worst case scenarios.  Chinalco has just declared that they have reached a new loan granting agreement with China Merchants Bank (CMB), according to which Chinalco’s credit line with CMB will increase from ¥10 billion yuan to ¥22 billion yuan, to support Chinalco’s aluminum, copper, and rare metal business. Earlier Chinalco already gained $21 billion of loans from China Development Bank, The Export-Import Bank of China, Agricultural Bank of China, and Bank of China.  China Iron & Steel Association (CISA) has certainly opposed Rio Tinto’s suggestion of a temporary 20% price cut, stating that the price cut is too low as well revealing it had requited steel companies to place iron ore orders according to 60% of the contract price in 2008, and make adjustment after this year’s price is decided.  Industry insiders believe Rio Tinto’s suggestion of price cut shows its expectation for decline in this year’s iron ore contract price. However, this price cut is still a distant way from Chinese buyers�expectations.  According to CISA Secretary General Shan Shanghua, this year’s iron ore long-term contract price should be decided on the basis of the current steel price trend, and should be lower than the contract price in 2007, meaning China expects an at least 40% price cut over the previous year.   Shan Shanghua declared yesterday the 20% price cut unacceptable. "The current spot iron ore price has fallen lower than 60% of the long-term contract price in 2008."  Some large domestic steel companies such as Valin decide iron ore purchasing prices according to prices on the spot market. Their purchasing prices are usually 20% to 30% lower than last year’s contract price.  Due to the differences between suppliers and buyers, the New Year’s iron ore negotiations show no signs of consensus. Citibank even said in a report on April 3 that the two sides might need four months to reach the final agreement.   Recently Graeme Rowley, executive director of FMG, Australia’s third largest mining company, predicted a 30% decrease in iron ore price in 2009 due to the global production cut and the situation on the spot market. Essel Group President and General Manager Ravi Kastia predicted the decline in bench market iron ore price in 2009 to be 40%, and spot prices to be 5% to 10% than the bench mark price.