Chinese slash iron ore prices 33%Reuters | Wed, 15 Jul 2009...

Chinese slash iron ore prices 33%
Reuters | Wed, 15 Jul 2009 10:03
[miningmx.com] -- RIO Tinto and BHP Billiton have secured agreement from Chinese steel mills to a 33% price cut in iron ore, effectively winning a long-running pricing battle that has become subsumed in a spying row between China and Australia, three separate sources with knowledge of the situation said.

The sources, including people on both sides of the negotiations, said some mills had agreed to a six-month contract and some a year, but there would be no formal announcement by the China Iron & Steel Association (CISA), which represented big Chinese steel makers in this year's round of pricing talks.

"The China Iron and Steel Association doesn't want to lose face but the steel mills in China need to keep production and ties with overseas miners," said one of the sources, who spoke on condition of anonymity because of the sensitivity of the topic.

"CISA will stick to its position that the Chinese steel industry opposes the 33% cut," the source added. "There is no room, as the miners are only offering two options - a 33% cut in the long-term price, or spot prices."

China's steelmakers had wanted an even bigger cut, of 40%, demanding that Rio and BHP, the world's second- and third-biggest iron ore miners, take term prices back to 2007 levels.

That would still leave prices at their second-highest ever, despite a collapse in world steel demand. It would also mean China would win a cheaper deal than mills in Japan and South Korea, who have already accepted the 33% cut.

However, China's own steel industry has been enjoying strong domestic demand and is producing more this year than ever before, undermining the case for a steeper price cut.

CISA officials were not immediately available to comment on the deals and one of the sources said it would not formally confirm anything unless the miners did first.

A BHP Billiton spokesman declined to comment. Nobody at Rio was immediately available to comment. But the firm's chief executive Tom Albanese said earlier on Wednesday that it had yet to reach final price settlements on iron ore sales to some customers on a benchmark price this year, including steel mills in China.

"Deliveries continue to other customers on a provisional price or spot sales basis," Albanese said in the company's second-quarter production report.

Chinese steel mills have been buying ore for their blast furnaces from spot markets since late last year after spot prices fell far below long-term prices. But the gathering speed of the Chinese economy and apparent steel demand has driven spot prices back above the long-term contracts.