What put a chill on Australia spot iron ore trade?

By Miyoung Kim - Analysis

SEOUL (Reuters) - Booming spot iron ore freight bookings from Australia to China came to a sudden halt last week, a shift that threatens to up the ante in an increasingly politicised dispute that has cast a cloud over national relations and rattled the world's biggest steelmakers and miners.

While there are sound fundamental reasons for China to cut back on record high imports of the ore used to make steel, and many analysts have for weeks predicted a slowdown, data suggest a disproportionate impact on Australian trade.

Vessel bookings from Australia's main iron ore ports to China have collapsed, but shipments from Brazil -- the other major term exporter -- have surged and Indian spot prices have rallied, factors that imply Chinese demand has not weakened.

Chinese mills are still buying extra iron ore, just not from Australia, their biggest supplier.

"China is on a buying spree and the sentiment is very upbeat...I see prices going up," said a senior source with a major seller in India, which exports spot ore and is potentially the biggest beneficiary of trade friction.

The key question is why: Are Rio (RIO.L) (RIO.AX) and BHP Billiton are holding back supply, possibly due to the unprecedented failure to reach a deal on annual prices by the June 30 deadline or the detention of Rio Tinto employees?

Are Chinese buyers avoiding booking Australian shipments to avoid any appearance of wrong-doing as the probe widens?

Or is this another gambit in the marathon price negotiations, even though neither side had much left to fight for after news on Wednesday that mills had quietly acquiesced to the same 33 percent price cut that other Asian steelmakers clinched in May, giving up hope for a bigger reduction.