Some Chinese steel mills reported to have accepted "provisional prices"

16:39, February 22, 2010      

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According to foreign media reports, China's 5 major steelmakers and 3 big iron ore suppliers including BHP, Rio Tinto and CVRD have reached an agreement to raise the iron ore price by 40 percent. According to the agreement, the price of iron ore which has reached Chinese ports will be increased to 84 U.S. dollars per ton from 62 U.S. dollars per ton in 2009.

However, quite a few Chinese mills stated that the iron ore pricing negotiations between Chinese steel producers and iron ore suppliers are still under way and the price is only a provisional price.

"As the talks in which the Chinese mills are represented by Baosteel Group are now under way, it is groundless to say that 5 Chinese mills have reached an agreement with the 3 iron ore giants and it is even more impossible for all 3 ore giants to accept the agreement under which the price will be raised by 40 percent," said a senior manager from a large-scale Chinese mill.

The manager disclosed that they currently buy iron ore from the big 3 iron ore giants according to a long-term agreement, and there is not a big difference between the price of the iron ore they buy and the long-term price jointly determined by Japanese and South Korean mills, as well as the big 3 ore giants last year.

Last year, Rio Tinto and Nippon Steel Corporation reached a long-term contract on the annual "initial price" of iron ore. The agreement stipulates that the FOB price of iron ore from Australia is 61 U.S. dollars per ton. However, according to the long-term contract concluded by Brazil-based CVRD and Japanese as well as South Korean mills, the FOB price of iron ore is 55 U.S. dollars per ton.

According to people close to the negotiation, several small and medium iron and steel enterprises have already reached a "provisional price" with BHP Billiton and thus, they have to pay 40 percent more for contract iron ore than Korean and Japanese mills did last year.

The price of spot iron ore showed an increasing trend February 21. The cost and freight (CIF) of Indian 63.5 percent grade iron ore powder is 131 to 133 U.S. dollars per ton, approximately 80 percent higher than the "initial price" that Japanese steel mills received in their long-term contracts with Rio Tinto.

An official from a domestic steel mill with an annual production of about 4 million tons told reporters that the current purchase price of iron ore was actually the price they had settled with the world's top 3 mining enterprises (BHP Billiton, Rio Tinto, and Vale SA) separately last year.

Foreseeing a significant rise in iron ore price this year, mining enterprises have preferred to take it slow in negotiations. Rio Tinto's chief economist, Vivek Tulpule said that factors affecting the iron ore spot market were expected to remain influential in 2010. BHP Billiton CEO Marius Kloppers made it clear that the iron ore price may experience a sharp rise due to the pickup of China's demand in 2010, and reiterated the necessity of adopting a more flexible pricing mechanism.

By People's Daily Online
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