iron price agreement coming soon china

Kate Haycock
Tuesday, 3 June 2008

FRAUGHT negotiations over iron ore price rises could be over by the end of this month according to the head of the China Iron and Steel Association.



News reports out of China have indicated Rio Tinto and BHP Billiton could reach an agreement with Chinese steel mills by the end of this month.

China Iron and Steel chairman Zhang Xiaogang has reportedly said the tense talks between the iron ore miners and the Chinese should end by June 30.

The talks have been slowed by Rio and BHP’s insistence on higher prices than those agreed to by Brazilian giant Vale, which earlier this year settled a 65-71% price rise for its iron ore.

Traditionally, the iron ore benchmark system has meant prices for all annual contracts are based on the first price agreed to for the year.

In past years this has been Vale, which is at a disadvantage to the Australian miners because its ore costs more to transport to China.

However, Rio and BHP have reportedly been pushing for higher prices than Vale’s to reflect the difference in freight costs, with the Australian miners arguing their product deserves a premium price.

The two have been looking for price rises of around 80%.

Chinese steel mills have resisted the price hikes, even calling for a boycott on Rio Tinto iron ore on the spot market.

Despite the mills’ resistance to the higher prices, if negotiations fail to reach a conclusion relatively quickly, it could free both Rio and BHP up to sell more iron ore on the lucrative spot market, an outcome Chinese mills are not likely to find palatable.

Shares in Rio were last trading at $A142.17, up 47c, while BHP was last at $45.35, down 14c.