Mount Gibson Iron has passed on to its Chinese customers the new iron ore benchmark prices set by Rio Tinto and Japan's Nippon Steel, fuelling the fight against China's push for a deeper discount.
The Perth-based iron ore miner, which had to look to China to bail it out as it struggled through the downturn, said yesterday it had advised its customers that its long-term contract prices would be in line with the prices set by Rio and Nippon this week. China has fought hard for a significant drop in iron ore prices, seeking a decrease of up to 50 per cent, and is expected to continue pushing for a better deal than Japan, which settled on a cut between 33 and 44 per cent.
Mount Gibson managing director Luke Tonkin said most of the major steel mills would probably accept the new benchmark, as they needed the security of long-term, high-quality supply.
"We have had interim prices in place since April 1. Those prices were reflective of where we thought the prices would end up in this contract year, and they were close to where the prices have been settled," he said.
He said Mount Gibson's customers had accepted the interim prices.
Rio's new agreements for its Hamersley products with Nippon Steel and South Korea's Posco will see the price for fines decline -- for the first time in seven years -- by about 33 per cent to $US62 a tonne, and the price for lump fall 44 per cent to around $US71 a tonne.
The mining major's much anticipated iron ore settlement came as its chairman, Jan du Plessis, began a series of investor meetings in Australia to discuss the contentious Chinalco deal.
Mr du Plessis continues his discussions next week when he heads to Sydney. Yesterday he met the Australian Shareholders Association, which earlier this month publicly objected to the $US19.5 billion ($24.6 billion) Chinalco rescue deal.
ASA member Duncan Seddon, who met with Mr du Plessis, described the talk as a "meet and greet" and said no potential alternatives to the deal were offered by Rio.
"We, like everybody, know the deal will be changed," Mr Seddon said after the meeting.
The statement is consistent with other reports of Mr du Plessis' investor meetings, where he has listened to concerns but remained supportive of the Chinalco deal.
Rio's board is expected to have an online meeting next week.
While the market awaits changes to the Chinalco deal, the heat is on China. Analysts believe China will eventually accept similar prices to Japan's, but the economic powerhouse is still confident it has greater bargaining power than Japan and can secure a better deal.
In a report on Rio yesterday, Credit Suisse said it expected the Chinese to settle in the next few weeks in line with or slightly below the prices agreed to with the Japanese.
Mount Gibson's customers include China's Shougang Concord International and APAC Resources, which took a stake of up to 40 per cent in the miner, after some of its customers defaulted on iron ore shipments last October.
Mr Tonkin said the company was contractually obliged to set its contracts on the prices set by Rio for its Hamersley products.
China's opposition to the new benchmark could drive more supply into the spot market, but most producers think the steel mills would not want that to happen. The spot price is now around $US67.50.
"Once there is competition for supply of quality material, it drives the spot price up. I don't think anyone wants to see that in the market," Mr Tonkin said.
Source: The Australian
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