Iron ore price: BHP counters Beijing claims of market manipulation

Benchmark 62% iron ore fines at China's Tianjin turned positive on Thursday to $146.30 reversing its downward trend since hitting 16-month highs of $158.90 in February.

The price of the steelmaking raw materials is still up an astonishing 67% since hitting three-year lows in September.

The huge swings in the price of iron ore has prompted China's national planning agency to allege that the Big 3 producers – Vale SA (NYSE:VALE), Rio Tinto (LON:RIO) and BHP Billiton (LON: BHP) – have been manipulating the price.

Between them the Brazilian giant and the Anglo-Australian diversified majors control almost 70% of the seaborne iron ore trade of more than a billion tonnes per annum and China consumes the bulk of global cargoes.

China's imports of iron ore was the highest ever in 2012 at 743 million tonnes and the country's steel mills continue to produce steel at a record-setting pace of 2 million tonnes per day.

The powerful Chinese government agency now says the mining companies and some traders have been creating artificial shortages in the market to drive up the price.

Dow Jones Newswires reports Thursday number three producer BHP has become the first to respond to the charges saying in an emailed statement:

"We aim to improve transparency by increasing liquidity in the spot market. We sell significant volumes on a spot basis, including through widely accessible trading platforms, irrespective of the iron-ore price."

The Sydney Morning Herald reports BHP explained that it was "very normal" for steel mills, traders and producers "to both buy and sell cargo to balance their books" and that it helps to provide "transparent market pricing and market liquidity."

"BHP bought 100,000 tonnes of iron ore in January in a rare move that market participants saw as a strategy by producers to stem a decline in prices," according to SMH.

Relations between Beijing and the iron ore miners have been strained for a long time as the market fundamentals have shifted in favour of producers.

The price of 62% iron ore never strayed from $10 a tonne for more than 20 years due to secretive negotiations and annual contracts.

Then at the end of 2004, led by BHP CEO Marius Kloppers, the old system broke down and producers put up the price 72%, marking the start of a supercycle.

Contracts moved from annual to quarterly to one resembling a spot market, while the price jumped from $36 in 2007 to an all time high of $192 in February 2011.

The so-called ore wars in the final years of the last decade also had some high profile casualties.

Stern Hu, Rio Tinto executive in charge of iron ore in China, and three of his colleagues were sentenced to lengthy jail terms three years ago for bribery and stealing business secrets.

According to the verdict of the Shanghai court Hu also "seriously damaged the interests of the Chinese steel enterprises and put those enterprise in an unfavourable place the iron ore negotiations."