Indicative of the extent of the expected fall in the price of iron ore, Fortescue Metals is now selling ore for 30 per cent less than last year's benchmark price because no settlement was reached before the start of the Japanese financial year on Wednesday.
"Regardless of what price we sell it at today, it will be adjusted to benchmark price when (negotiations are) concluded and therefore adjusted back to the beginning of April," said a Fortescue executive director, Graeme Rowley, yesterday.
Most analysts expect the iron ore price will fall by 30 per cent to 40 per cent this year after reaching a record high last year.
Brazil's Vale, the traditional price-setter, last month said it would wait for Rio Tinto or BHP Billiton to reach the first benchmark settlement this year.
BHP has been pushing for steel makers to accept an index system rather than a benchmark price, but Mr Rowley predicted BHP would be the price-setter this year since Rio "won't want to upset China" in light of a proposed $US19.5 billion ($A28 billion) investment deal with Chinalco.
"I think BHP will settle," he said. "And they will settle a benchmark." Merrill Lynch analyst Tom Price this week gave the same assessment, predicting BHP would reach the first settlement with Japanese steel makers or China's Baosteel.
"While indices now exist for iron ore, they only cover a tiny trade," Mr Price said. "So BHP may need to work with the benchmark price mechanism for several years yet."
Fortescue, which sells all its ore to China, has already admitted selling some below benchmark prices now since the spot price fell below the contract price in the fourth quarter of last year.
Mr Rowley said Japanese and Korean steel makers had honoured their contracts, but their Chinese counterparts had pushed for lower prices.
He said European steel makers had recently expressed interest in Fortescue's lump product because of a shortage of the material in Brazil, but no sales agreements had been reached.
Fortescue should have a stronger balance sheet soon after the Federal Government this week granted approval for a $645 million equity injection from Chinese steel maker Hunan Valin Iron & Steel.
Mr Rowley said that would clear the way for Fortescue to gain access to more financing from China to fund expansion plans, possibly from China Investment Corp or China Exim Bank.
He said the structure of any deal would be restricted by the terms of its outstanding bonds, but one possible structure would be for the Chinese to take a 40 per cent stake in its Solomon deposits that would be mined in an expansion.
BHP is expanding its iron ore operations and Rio is seeking to resume its own plans with funding from China.
Source: The Age, Melbourne
No comments:
Post a Comment