Vale seeks to boost Asian iron ore prices

Supplier asks mill for 12-13% mid-contract hike

By Tom Stundza -- Purchasing, 9/15/2008 2:00:00 AM

The Asian iron ore marketplace is in an uproar now that Vale of Brazil is seeking to raise prices by 12-13%% for regional deliveries months before annual supply contracts expire. Analysts suggest that such an increase in raw material costs is ill-timed since Asian steel prices have been declining off their cyclical peak for the past month. And even Vale admits there is no guarantee the price-hike talks will be successful.

Vale of Brazil is one of the world's largest iron-ore producers and is negotiating with Japanese clients to boost prices for the second time this year, Bloomberg reported late Tuesday. Vale asked Nippon Steel and its Japanese rivals to pay 12% more now for the material after agreeing in February to an increase of at least 65%.

Reason: Asian customers pay 11-11.5% less than European clients for the steelmaking raw material, Rio de Janeiro-based Vale says in a statement. Upshot: Mineweb.com reports that the iron ore contract system is facing a major challenge since the proposal “is putting the benchmark annual contract system in jeopardy.”

Vale is seeking to raise prices before annual contracts expire with such clients as Nippon Steel, JFE Holdings and Sumitomo Metal Industries. These are Japan's three biggest steelmakers and they already have forecast declines in profit this fiscal year because of high costs for iron ore and other raw materials while steel prices are declining.

However, BHP Billiton CEO Marius Kloppers says his company plans to seek higher prices from Chinese steelmakers next fiscal year. :”There still is good value for the customer, and that's something that we'll take into account as we ask for prices next year,” Kloppers says in a Bloomberg Television interview in New York this week.

BHP Billiton won a price increase of as much as 97% in July from Baosteel Group, China's largest steelmaker, matching a similar agreement reached in June by rival miner Rio Tinto Group. BHP and Rio Tinto, which ship their ore from Australia, both argued for bigger increases than competitor Vale, which raised the price for its ore to Chinese clients by as much as 71% effective in April. Bloomberg says Vale has asked Chinese mills for a 12% hike, similar to the proposed Japanese market increase.

See also: Iron ore supply tightens in Australia