Deal with Rio for 85% rise in iron ore prices

By Fu Chenghao  |   2008-6-24  |     NEWSPAPER EDITION

BAOSTEEL Group Corp, which represents Chinese steel makers in the annual iron ore price talks with global mining giants, agreed to an average rise of 85 percent in 2008 contract prices with Australia's Rio Tinto yesterday.

This left BHP Billiton, the world's largest mining company, the only one that hasn't reached a deal with China for the annual contracts. Brazil's Vale agreed to a rise of 65 to 71 percent with China and other Asian miners in February.

Rio and BHP had been holding out for more, demanding a freight premium to reflect the lower freight cost from Australia, than from Brazil, to China. In the past, the first deal agreed by one of the three miners and a steel maker usually set the global benchmark for that year.

As Rio settled its contracts, BHP is now expected to settle 2008 contract prices on similar terms.

The prices for Pilbara blend fines and Yandicoogina fines increased 79.88 percent to US$1.4466 per dry metric ton unit, and the price for Pilbara blend lump jumped 96.5 percent to US$2.0169 per dry metric ton unit, effective starting April 1, Rio said.

Industry publication SBB said this represents an average rise of 85 percent based on the production split with fines accounting for about three quarters of output and lump iron ore the remainder.

Umetals analyst Hu Kai said Australia should be happy with the prices. ''But due to the recent drop in freight rates, to import ore from Australia is cheaper than from Brazil,'' Hu said.

Baosteel said the results came as both parties intended to maintain the traditional pricing mechanism and the market order after friendly negotiations.

''Rio has a long history of cooperation with Chinese steel makers, and we agree that a stable relationship and co-development between the upstream and downstream industries would benefit both,'' Baosteel said. ''Chinese companies support Rio to further increase investment and expand output to satisfy the market demand.''

Sam Walsh, chief executive Rio Tinto Iron Ore, said that the agreement builds on the valuation premium for its Pilbara iron ore businesses.

Term ore contract prices have been rising for six consecutive years, adding costs to mills from Asia to Europe and driving up steel prices. China is the world's largest ore buyer.

Separately, Baosteel's listed unit, Baoshan Iron & Steel Co, has raised prices of some main products for August, an official said yesterday.