can't find it on their website but this one is worth a read also...

can't find it on their website but this one is worth a read also from The West, looks like RIO wants to play hard ball.

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Rio eyes $2.6b windfall if Asian mills stump up
20th February 2008, 9:00 WST

Rio Tinto is trying to force Asia’s steel mills to pay a $US2.4 billion ($2.6 billion) premium for its Pilbara iron ore to reflect the cost savings the steel mills enjoy from sourcing the key steel ingredient from nearby WA, rather than distant Brazil.

Rio’s admission on Monday night that it was refusing to agree to a forecast-topping 65 per cent rise in 2008 benchmark iron ore prices, and the fact it is even scoffing at a 70 per cent settlement, illustrates the miner’s determination to finally make Asia’s steel mills cough up some of the freight savings they enjoy by not sourcing their needs from Brazil’s iron ore giant Vale.

The difference in freight costs between ore sourced from Brazil and that from the Pilbara was about $US35 a tonne last year, according to statistics from the Baltic Exchange which tracks freight rates.

It is expected that Rio is pushing for at least a half-share of the steel mills savings based on the freight differential, which fluctuates widely and stands around $US45/t. Such a move would mirror BHP Billiton’s bargaining tactic in 2005, which ultimately failed when Rio failed to back its Pilbara rival.

However, the dynamics in the seaborne iron ore market have changed since 2005.

Despite the annual benchmark negotiations achieving price rises of 18.6 per cent, 71.5 per cent, 19 per cent and 9.5 per cent over the past four years for a present freight-less price of about $US55/t of Pilbara ore, global supply has remained tight.

Spot prices for iron ore shipments are about $US200/t, compared to the $US85-$US90/t for benchmarked Pilbara ore ($US55/t at the port plus $US30-35/t freight) and sufficient reason for Rio to confidently push ahead with its bold demand.

Based on Rio’s Pilbara production last year of 135.1 million tonnes and the Baltic Exchange numbers, the miner would receive about $US2.4 billion more in sales revenues from its Asian customers, dominated by China’s steel mills, if it received a half share of the cost savings.

Most of the additional revenue would flow straight through to Rio’s profit line and trigger a massive surge in its share price valuation (iron ore profits made up about a third of Rio’s $US7.3 billion group profits last year) at a time when the miner is under takeover attack from BHP.

Rio has dismissed BHP’s 3.4-forone share swap offer as undervalued and would be able to use a betterthan-expected iron ore price settlement to further justify its bid rejection.

If Rio is successful in its hard-line stance with its customers it would effectively achieve a 102 per cent increase in 2008 iron ore prices, a huge premium to the 65 per cent level for low-grade ore agreed to between Vale and a raft of Japanese, Korean and German steel makers this week.

It also overshadows the 71 per cent price rise Vale achieved for its highergrade Carajas with the same customers.

China’s steel mills have trumpeted the 65 per cent increase agreed by its Asian peers as the new benchmark, even though they are yet to sign a deal themselves, in the faint hope of trying to assert some control over the bargaining process.

PETER KLINGER