Vale SA, the world’s largest iron- ore producer, said about half its shipments to China are being bought at the same price levels agreed in annual contracts with mills in other nations.
Some Chinese steelmakers are unofficially accepting the new benchmark ore prices, which are 28 percent lower than last year, a Vale spokeswoman, who declined to be identified citing company policy, said by phone today from Rio de Janeiro.
China, the world’s largest iron-ore consumer, has sought greater price cuts than those obtained by mills in countries including Japan after the economic crisis reduced demand for the raw material. Ore prices in the market for immediate delivery have risen above contract prices, weakening China’s position.
“Iron-ore producers including Vale will be successful in their quest for the same benchmark prices in China,” said Tony Rizzuto, New York-based analyst with Dahlman Rose & Co. in a telephone interview today. Lower prices for the Chinese “are unlikely because of China’s robust steel production.”
Vale agreed in June to cut prices for iron-ore fines, the benchmark product, by 28 percent with companies including Japan’s Nippon Steel Corp. It also reduced prices by 44 percent for lump ore and 48 percent for pellets.
The cut was the first in seven years after a credit crisis pared demand. China agreed in last year’s contract prices to pay about 65 percent more for fines to Vale and about 85 percent to competitors Rio Tinto Group and BHP Billiton Ltd.
“The benchmark is already set,” Vale Chief Executive Officer Roger Agnelli said June 25, referring to the agreements with steelmakers in Asia and Europe, including ArcelorMittal. “But we won’t leave the Chinese without ore.”
Chinese mills which haven’t accepted purchases at the new benchmark price levels are continuing to buy Vale’s ore at spot market prices, according to the spokeswoman.
China buys about 70 percent of the world’s seaborne iron- ore supplies, Vale’s Ferrous Executive Director Jose Carlos Martins said in May.
Vale, which currently supplies less than one-third of China’s iron-ore imports, may win short-term market share in the Asian country because of the current “strife” between its rival Rio Tinto Group and China, Rizzuto said. Chinese authorities detained four Rio executives on July 5 on allegations that they stole state secrets.
The incident is causing spot-market iron-ore prices to rise at a time when steelmakers elsewhere in Asia and in Europe are increasing ore purchases as steelmaking levels rise, Gilberto Cardoso, Rio de Janeiro-based analyst with Banif Securities, said in a telephone interview.
Source: Bloomberg
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