Pressure on Chinese to accept Rio priceAAPJune 02, 2009...

Pressure on Chinese to accept Rio price

AAP
June 02, 2009 01:52pm
PRESSURE is building on Chinese steel mills to accept a reduction in iron ore prices of about a third, after Rio Tinto announced it had settled terms with many Asian customers.
Rio Tinto announced overnight its subsidiary Hamersley Iron has settled its iron ore contract with Taiwanese steelmakers CSC and Dragon on the same terms it struck with Japan last week.

Japan's largest steelmaker Nippon Steel and Korean steelmaker POSCO last week agreed to reduce the price of fines by about 33 per cent to 97 cents per dry metric tonne unit (dmtu), from 144.66 US cents in 2008.

The price of Pilbara blend lump fell by 44 per cent to 112 US cents per dmtu, from 201.69 US cents.

Analysts said it was a good deal for Rio, with larger cuts feared following a dive in commodity prices since last year's contract prices were settled.

Rio Tinto has yet to agree to terms with China's steel mills.

But the China Iron and Steel Association, whose 119 members account for more than 90 per cent of China's steel production, has previously said it wants prices cut by 40-45 per cent. AME Mineral Economics analyst John Bruyn said Rio's latest announcement increased pressure on China's mills to accept similar terms.

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The Australian, 1 Jun 2009 "It puts a lot of pressure on them because now they are out on a limb,'' Mr Bruyn said.

"Everyone else has said they are going to settle, and these are big steel mills.

"The Japanese have historically been the biggest and the best.''

Chinese mills may not accept exactly the same deal, he said.

"There may be some sort of concession.

"Maybe they will accept it for this first quarter and they win a right to re-negotiate terms on some sort of a half-yearly basis.''

Rio Tinto head of iron ore Sam Walsh said in a statement that the situation regarding iron ore contract prices was becoming clearer as more customers settled on the same terms.

"We continue to negotiate with our remaining customers, the bulk of whom are in China,'' Mr Walsh said.

"We believe the settlements achieved to date demonstrate that customers appreciate the certainty of price and volume that the benchmark system ensures,'' he said.

Managing director of Eagle Research Advisory, Keith Goode, said his interpretation of Mr Walsh's comments was that Rio wanted China to accept the same deal as other Asian customers.

"It is just saying (to Chinese steelmakers) look, this is the benchmark price,'' Mr Goode said.

"You can't stand out there and say 'I want a larger reduction so I can make a bigger profit','' he said.

Rio Tinto said today about half the iron ore it has produced this calendar year has been sold on a spot market basis.

Last week, Fortescue Metals Group Ltd chief Andrew Forrest said China might have to pay spot prices for iron ore if it doesn't accept the new contract prices.

Rio Tinto is the world's second-largest iron ore miner.

Can anyone say if price remains at these levels, what does that make the inground value for UMCs resource?