Iron Ore Hike & Steel Prospects
"These agreements are a strong endorsement of the settlement reached last week and reflect the very strong demand for our products across the world's fastest growing markets,'' Rio Tinto iron ore chief executive Sam Walsh said. BHP Billiton, the world's third largest iron ore producer, is yet to settle with its Asian customers. Rio Tinto's settlement is higher than that achieved by Brazilian giant Vale, which agreed with steelmakers to price rises between 65% and 70% for its ore in 2008. Vale's settlement would have generally been accepted by producers and steelmakers as the benchmark contract price for the year, but Rio Tinto and BHP Billiton had held out for a premium. BHP Billiton and Rio Tinto have argued that a "freight premium'' should be added to their iron ore in Western Australia's Pilbara region because it is much cheaper to export into Asia than from other regions, such as Brazil.
The Rio Tinto settlement was "reflective of the geographic value-in-use of Australian ore and a premium for ore quality''. The price agreement between Rio Tinto and its Asian customers will apply to the contract year that started on April 1.
Thigher price achieved by Rio Tinto would serve BHP Billiton well for their negotiations. The spectacular hike also reflected the inherent strong demand globally.In the negotiations, Rio Tinto demanded 96.5 percent more for lump iron ore and 79.88 percent more for iron ore powder. Nippon Steel Corp., JFE Holdings Inc. unit JFE Steel Corp. and other leading Japanese steelmakers accepted a near 100 percent hike in the price of Australian iron ore in their negotiations with the Rio Tinto mining group for fiscal 2008 shipments. Vale, the world's largest iron ore producer had proposed to invest US$1bn in an iron ore pellets. This would serve local iron ore makers well. In particular Kinsteel, which operates a 1.5m tpy direct reduce plant. Lion Industries runs a 880,000 tpy hot banquette plant and has a 20% subsidiary soon to be running a 1.54m tpy DRI plant. Thus we have a national capacity of about 4m tpy, with real local demand at 6m MT. Vale's proposal will allow local players to save on the US$80MT transportation costs from Brazil to Malaysia.
p/s photos: Karena Lam Kar Yan