r spot prices the future, 2009 & 2010

and not contract pricing...

Comphania Vale sells iron ore at spot prices to ChinaFont

Behrmann | April 16, 2009
Article from: Dow Jones Newswires
COMPHANIA Vale do Rio Doce, the world's biggest iron ore producer, is "aggressively" selling the commodity at spot market prices to China, possibly locking in future market share and weakening the contract pricing system, Citigroup said in a note.

Vale has been selling iron ore fines from its Carajas mine at between $US70 and $US75 a tonne in recent weeks, signing new long-term contracts with small and medium-sized mills, said the note, which was dated yesterday.

That price is about 30 per cent below last year's benchmark contract price.

"Chinese steel mills appear intent on a 40-50 per cent cut in benchmark rates. Yet, we do not see the producers agreeing to lock in this type of cut for a full year.

“Thus, spot prices may become the dominant pricing mechanism in China for 2009," the report said.

"(But) a benchmark settlement is still needed for non-Chinese customers," said Citi, with analyst consensus pointing to a 30 per cent cut in benchmark fines prices, and more for iron ore pellets and lumps.

Vale, as well as other iron ore majors, Rio Tinto and BHP Billiton, remain locked in talks for the annual iron price settlement, even though the new contract year commenced at the start of April.

Rio Tinto has offered an interim 20 per cent discount to Asian steelmills as talks drag on.

Vale has said it will take a backseat this year in settling the price first, because it sells a large part of its iron ore to Europe and the US, where demand continues to be bleak.

Iron ore spot prices in China have come down in recent weeks to fall to $US64 per ton, due to Vale's aggressive entry into the market. Chinese port stocks have risen 10 million tonnes to around 68 million tonnes, with March iron ore imports hitting a record high of 52.1 million tonnes, up 46 per cent on-year.

That's the same low price level as back in October, when China's steel production dropped drastically, and many Indian exporters and local Chinese producers were unwilling to sell.