cvrd persists

CVRD Persists on 24% Price Hike Quest
Apr 14, 2006 09:42:21
Brazil's mining giant CVRD is sticking to its guns in talks with its customers, insisting on a 24 percent iron ore price hike despite resistance from Chinese steelmakers.
CVRD President Roger Agnelli said on Thursday the world's largest iron ore miner, which currently deals with long-term supply contracts, could resort to a fledgling but growing spot market for iron ore, where the prices are higher.

CVRD, or Companhia Vale do Rio Doce, argues that iron ore suppliers, which are producing at the limit of their capacity amid red-hot world demand, need the price rise to be able to invest heavily in new mining operations.

"I think they'll accept our reasoning ... If a client doesn't want to accept it for long term, we will sell in the spot market and I can guarantee that we'll make more money there," Agnelli told reporters,

However, he said, that would not be an easy choice.

"As we work with long-term vision, we prefer to stick to our long-term clients because it's them who guarantee our future cash generation and investment," he said.

Agnelli said the proposed hike was "absolutely correct and fundamental" for future investments, explaining that the current overheated market was a result of a lack of investment in new capacity in the 1990's, when prices were low.

CVRD also seeks to offset the Brazilian currency's appreciation to five-year highs against the dollar.

China's top 16 steel mills, headed by Baosteel, held the fourth round of talks in late March with the world's top three miners, CVRD, BHP Billiton Ltd./Plc and Rio Tinto Ltd./Plc without an agreement about contract prices for the year starting April 1. It is not uncommon for the talks to last past the deadline.

"The negotiations continue. We're in talks in Europe, in Asia. Our clients want to hear the Chinese position, and we've explained to them that we need to invest very strongly and need adequate resources for that," Agnelli said.

The Chinese steel industry is no longer insisting that the benchmark iron ore price drop in the year beginning April 1. Yet it is still holding out for as small a rise as possible, after a 71.5 percent increase last year.

Agnelli said recent problems in CVRD's mining regions due to heavy rains, as well as an equipment problem in a port in northern Brazil, would not affect this year's delivery targets. The ore transporting line in the port has been fixed already.

CVRD expects to boost iron ore production to 264 million tonnes in 2006 from 234 million tonnes last year.-Reuters