The move by the world’s three largest iron ore producers to shift from annual to quarterly prices has resulted in a doubling of iron ore prices for the April-June 2010 quarter. Chinese steelmakers feel this price rise most acutely because they lead the world in imports of iron ore.

A Chinese industry group, the China Iron and Steel Association, has reportedly called for a two-month boycott of iron ore purchases from Vale S.A. (VALE), BHP Billiton Ltd. (BHP), and Rio Tinto  (RTP), the three companies that control two-thirds of the world’s supply of iron ore.

Australian government officials are responding by saying that a boycott calls into question China’s status as a market economy. The Australian trade minister noted that a government “can’t be issuing directives in terms of restricting supply.” Good luck with that line of reasoning in China.

There are some who believe that China won’t restrict imports because they can’t afford to. However, the Chinese have been stockpiling iron ore for more than six months, and it is very likely that the stockpiles will carry them through at least two months of production at current levels.

The Chinese hope, of course, to lower the spot price of iron ore during the boycott, which will then result in a lower price for the mineral in the July-September quarter. But that’s really all they can hope for because other iron ore buyers, like Japan and Korea have already signed up at the new prices. The quarterly pricing principle has been established and even China is unlikely to succeed in turning back the clock.

China’s largest steelmaker, Baoshan Iron and Steel (often referred to as Baosteel), last week reported 2009 annual revenue of $21.76 billion and profits of about $855 million, both down substantially year-over-year. Almost 90% of that profit came in the second half of 2009, on the back of the Chinese government’s stimulus spending package. New cars and appliances were the main components of Baosteel’s profits.

Chinese imports of iron ore topped 50 million tons in 2009, up more than 35% from 2008, and would probably jump by as much again this year. That represents an enormous jump in profits to the miners.

For example, BHP estimates that for every $1 increase in the price of iron ore the company adds $80 million in profits. Thus, going from say $60/ton to $120/ton adds $4.8 billion to BHP’s bottom line. And that’s if demand stays flat.

It’s unclear whether or not China will actually boycott iron ore for a couple of months. They don’t really have a lot to gain other than a delay in the inevitable. The miners will suffer on the top line, but the new pricing scheme will rescue and perhaps even breathe new life into the bottom line.

Tell us what you think here.

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