Brazil, ArcelorMittal Ore Price Deal Puts Heat On China
June 22 2009 - 3:58PM
Dow Jones News
Brazilian mining mammoth Vale S.A. (VALE) looks set to gain a
more favorable 2009 iron ore term price from China than previously
expected after settling with global steelmaker ArcelorMittal (MT)
Friday.
"With each contract signing with mature and consolidated
markets, the pressure on China to settle is growing," said Gilberto
Cardoso, mining analyst at Banif Investment Banking.
ArcelorMittal settled an annual ore price supply contract with
Vale at the same price level recently agreed by South Korean and
several Japanese steelmakers.
All have agreed to pay for iron ore fines at 28.2% below the
2008 reference price, with lump iron ore prices sliding 44.47%,
Vale said.
China has been holding out for a cut of at least 40%, but market
consensus is that it will be hard-pressed to gain such a reduction,
especially after these major settlements.
Cardoso roughly estimated the major Chinese mills, yet to agree
2009 term prices, as around 33% to 35% of Vale's market.
Major Chinese steelmakers' bargaining position appeared to
diminish even further Monday on Chinese press reports that some
mills in the north of the country may have also settled 2009 term
prices.
The mills in Shanxi province are reported to have agreed
contracts with the world's three largest suppliers: Vale, BHP
Billiton Ltd. (BHP) and Rio Tinto Ltd. (RIO).
If confirmed, the mills will have broken ranks with China's
umbrella negotiating organization, China Iron and Steel
Association, or CISA.
Meanwhile, there is no clear end in sight for the formal Chinese
mill negotiations via CISA.
"People had expected a deal by the end of June, but it looks
like it may take some time longer," Cardoso said.
"If there's no agreement with the Chinese by the end of June,
then there won't be one," said Marcos Asuncao, mining analyst at
Brazil's Banco Itau.
Asuncao indicated that the Chinese would then buy their iron ore
on the spot market instead of using a fixed annual contract.
"The Chinese are not interested in either the spot or benchmark
price. What they want is the lowest possible price. Last year when
the spot market price was higher, they favored the benchmark; this
year, when the spot's lower, they want the benchmark," he
explained.
In recent years, Vale as the world's largest supplier and
Chinese mills as the world's largest consumer have set the global
term price for iron ore through annual negotiations.
-By John Kolodziejski, Dow Jones Newswires; 55-21-2586-6086;
john.kolodziejski@dowjones.com