Global reaction to massive iron ore price rises

Northland Resources reports that a number of Japanese steel mills -Nisshin, Sumitomo, Kobe and JFE- have negotiated a 65% increase with Vale (formerly known as CVRD) in the benchmark contract price for iron ore fines. The new price for Itabira fines is almost $1.19/dry metric tonne unit, while Carajas fines are subject to a premium of 6.19/Fe%, tonne. “This is right at the top end of the range of predictions for the 2008 contract price, Northland says.

“It’s probably safe to assume that the Chinese mills are going to have to accept a similar increase in their 12 month price.”

As for the reasoning behind such a hefty increase for 2008, Vale pointedly noted in its press release: “The magnitude of the price increase for 2008 reflects the continuity of very tight conditions still prevailing in the global iron ore market.”

“Next up, says Northland, “we will be watching for an agreement covering the price of iron ore pellets and for news of agreement between Vale and its Chinese customers who must be under considerable pressure after today’s news.”

Sam Walsh, Chief Executive of Rio Tinto Iron Ore, commented: “Rio Tinto is currently in negotiations with customers to establish the prices it will receive for iron ore for the 2008 year. These discussions are continuing. Rio Tinto notes the announced settlements between Vale and POSCO and Nippon Steel Corporation for Carajas fine ore and Itabira fine ore.

“The Group is seeking further customer clarification about the settlements, and in particular the settlement for Carajas ore, which is the relevant reference ore for Rio Tinto products. In any event Rio Tinto will continue to negotiate to obtain a freight premium, to reflect its proximity to Asia and its major customers.”