Rio Tinto strikes iron ore price deal with Chinese steelmakers
Baosteel agrees to pay 85% more for iron ore from Rio
By Dave Hannon -- Purchasing, 6/23/2008 7:46:00 PM
After months of negotiation and speculation, mining giant Rio Tinto has secured a price increase of 85% on average for the iron ore it sells to China’s steelmaking giant Baosteel, which typically sets a benchmark rate for all Chinese steelmakers. Prices for iron ore fines will increase 79.9% to $144.66/dry metric ton, while lump iron ore prices will jump 96.5% to $201.69/ metric ton, according to a company statement.
The higher prices for iron ore will help Rio defend itself against a $171 billion hostile bid from mining rival BHP Billiton.
"To maintain the traditional pricing system and normal market order and to hold a long-term friendly cooperation between the upstream and downstream sectors, Baosteel has settled 2008 benchmark iron ore prices with Rio Tinto after friendly negotiation," Baosteel said in an emailed statement.
Earlier this year, Brazilian firm Vale secured a 65% iron ore price increase from Chinese steelmakers. But Australian miners including Rio Tinto and BHP negotiated for a steeper increase saying the freight rates for their iron ore would not be as high as those for Brazilian ore. Shipping ore costs about $55/ton less from Australia than Brazil, according to data compiled by Bloomberg. BHP Billiton has yet to secure a contract with Baosteel but its CEO Marius Kloppers, said an interview withBloomberg after the Rio Tinto deal was made public, "I am happy that the market is starting to realize that" the freight differential should be reflected in the iron ore price.
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