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Ore miner ends talks over price

By Zhang Qi (China Daily)
Updated: 2009-08-28 09:13

One of the "big three" iron ore producers has cut China's national ore negotiating body out of the equation, electing to deal directly with steel makers that want to buy its products.

The move will heap more pressure on the China Iron and Steel Association (CISA), which had hoped to reach a deal in June.

Now, there is speculation that the overdue deal may not be reached at all this year.

The chief executive of Brazilian iron ore mining firm Vale, Roger Agnelli, said the company expected to keep offering provisional prices on ore shipments.

Vale agreed to grant Chinese steel mills a 28 percent discount on the 2008 benchmark price in provisional contracts until new term prices are settled, said Hu Kai, a steel analyst from Umetal.

CISA rejected the 28 percent cut when it was offered at the talks in May, when it is pushed for a larger cut. The 28 percent cut was, however, accepted by Japanese and South Korean steel mills.

"The protracted talks seem endless this year," said Xu Xiangchun, a director at Mysteel consultancy. "Since both miners and the CISA are sticking to their guns, the 2009 benchmark price might be suspended and agreement sought next year."

CISA managed to get a 35 percent price reduction from Australia's third iron ore miner, Fortescue Metal Group (FMG), on Aug 17. It called for the same deal from the 'big three' - Vale, BHP and Rio Tinto.

None agreed.

CISA had earlier refused to budge from its call for a 45 percent discount.

"We don't see this pricing agreement as relevant to our pricing for fiscal 2009," Gervase Greene, a spokesman for Rio Tinto, said last week.

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A senior executive of BHP China told Chinese media the company also would not agree to the same price as FMG.

"We imported iron ore from Australia or Brazil miners at the benchmark price that they offered to Japan and Korea, but if the benchmark price is finalized with China, we will be refunded or charged by the miners according to the difference," said an anonymous source from a large Chinese steel mill.

The annual price talks between the three global iron ore miners and China's steel industry have been deadlocked for months after China refused to accept the 33 and 28 percent cuts offered by Australia miners and Brazilian miner Vale, respectively.

"If you have a contract (that) is being honored, you sell, you receive, what do you need to negotiate?" asked Agnelli. "Everything is fine ... We're not negotiating anything."

Agnelli said the accord was "evidently fair" since spot prices "were much higher than contract prices" and the company was honoring the provisional contracts.

"The tough attitude from the three global miners means they will not accept CISA's proposal and they are quite bullish on the Chinese market. The demand is always there," Hu said.

China's crude steel output could hit a record in August. Data from CISA showed daily production ran at 1.67 million tons in the first 10 days of the month, up 10 percent on early July.