Vale may quit iron ore pricing negotiation with China

14:47, March 11, 2010      

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The iron ore pricing negotiation is at a tough time, as ore spot price keeps rising. "Vale of Brazil (Companhia Vale do Rio Doce, CVRD) had exited the negotiation for they cannot accept the low prices proposed by Chinese steel mills," today's National Business Daily quoted a steel producer in China's Hebei province.

The Vale refused to comment on "rumors" about iron ore negotiation.

"Brazil ore miners are seeking to replace long-contract ore price with spot price, which is 80 percent higher than last year's long co-price. But Chinese steel mills cannot even accept price hike of 40 to 50 percent," said Yin Jimei, chief analyst from ttssteel.com.

Long co-prices or iron ore were usually 10 to 20 percent lower than spot prices, said Sun Ming, analyst with Beijing Lange Steel Information Research Center. "If iron prices rise to much, not only China's steel producers, but all other relevant industries will be impacted."

The divergence between China's steel mills and Vale in price hike may be an important reason for Vale's possible exit.

Japan's JFE Holdings, the world's sixth largest steel producer, is reported to accept Vale's proposal of 90 percent price hike.

Marius Kloppers, CEO of BHP Billiton, has been pushing forward iron ore index pricing. "The traditional iron ore pricing mechanism is too old to keep up with the changing market," he said.

"It is quite possible that Chinese steel producers and global iron ore giants fail to reach an agreement," said a steel analyst. Rio Tinto, BHP Billiton and Vale hold the monopoly of iron ore, and are apparently to replace long co-pricing with spot price.

"The balance between supply and demand has already gone," he said.

By People's Daily Online
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