Skyrocketing costs for iron ore are causing tensions worldwide, most recently in a threat by an association of China’s steel makers to boycott purchases from Australian ore giant Rio Tinto over alleged market manipulation.

Members of the China Iron & Steel Association allege that Rio Tinto is holding back on deliveries of iron ore at contracted prices to sell ore at much higher prices on the spot market. It comes at a time when there are also negotiations between many miners and steel companies for new contract ore prices – at substantially higher rates.

Rio Tinto earlier this year announced that it was exercising a little known contract provision in many agreements that would allow it to supply only 90% of contracted volumes, allowing it to take the other 10% of ore to the spot market. This would significantly increase revenue and profit on that ore volume versus contract pricing. Existing contract pricing (before the new contracts are finalized) are running about $80-90 per ton. Spot market pricing, by contrast, has recently been near $200 per ton – a huge premium versus contract levels.

China’s steel companies allege Rio Tinto is holding even more ore volumes back than the special contract provisions.

Most Chinese steel manufacturers reached a new contract earlier this year with Brazil’s Vale, the world’s largest iron ore producer, that called for price increases of 71%. But they have not yet done so with the second and third largest ore companies, Rio Tinto and BHP. Those companies, shipping out of Australia, think they should get a price premium versus Vale due to lower logistics costs and shipping times in delivering to China.

While robust iron ore prices and perceived opportunities in China are leading smaller producers from Eastern Europe, South America and elsewhere to look at expanding ore mining capabilities, it will take several years and much capital for those ore supplies to reach market, meaning ore prices and costs to produce steel will be heading higher for some time.