Remembering ADY's iron ore contract's are benchmarked to CVRD's...

Remembering ADY's iron ore contract's are benchmarked to CVRD's - should be a positive and hopefully a hurry up for negotiations with the Chinese Steel mills....

http://www.ft.com/cms/s/0/7e5152dc-7b3d-11dd-b839-000077b07658.html?nclick_check=1


Vale seeks 20% iron ore price rise from China
By Patti Waldmeir in Shanghai and Javier Blas in London

Published: September 5 2008 13:41 | Last updated: September 5 2008 19:04

Vale of Brazil, the world’s largest iron ore miner, has asked Chinese steelmakers to pay up to 20 per cent more for ore supplies in an unprecedented move in the middle of an annual contract.

The request comes well before April 2009, when new prices would normally apply, and in spite of a slowdown in economic growth.

Vale’s move comes as a broad sell-off in commodities, particularly oil, has brought hopes that lower raw materials prices could help boost a slowing global economy and ease inflationary pressures.

Chinese industry officials said this week that Vale had sent letters to several mills demanding an additional mid-cycle price increase of between 13 and 20 per cent from September 1. The increase is on top of a 65-71 per cent rise in February.

Australian miners won a price increase of up to 96 per centin June after negotiations with Chinese mills, to reflect the lower cost of shipping ore from Australia.

Traders said Vale’s demand for an extra 20 per cent rise could partly reflect a drop in freight costs, which means that Brazilian ore delivered in China is now cheaper.

Vale declined to comment, only saying it was “constantly dialoguing with clients”.

Analysts said Chinese mills strongly opposed a price increase because of fears that domestic steel demand was slowing. But if they did pay more, they were likely to pass any rise in costs rises on to customers, so driving up the price of goods such as cars or washing machines.

Baosteel, which negotiates with miners on behalf of the Chinese mills, said it was preparing a response to Vale’s demand.

Vale’s negotiating stance, analysts said, could be an attempt to set the tone for next year’s iron ore price negotiations, due to start late next month or early November, when miners are expected to demand a 30 per cent increase.

Judy Zhu, an analyst with Standard Chartered in Shanghai, said China’s steel production growth slowed to single digits in July, compared to a 14 per cent rise in the same period of 2007.

“This has built a large surplus of iron ore in the domestic market,” she said. “Spot iron ore prices should trend lower further to reflect the improving supply and demand balance.”

But Sinosteel Trading Corporation said Chinese mills’ leverage was limited. “The suppliers have absolute bargaining power, which is largely a result of China’s voracious demand for iron ore and other raw materials … I’d say players in China will have to accept [the increase],” a company spokesman said.