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Rio cuts key iron ore prices by 33%

(China Daily/Agencies)
Updated: 2009-05-27 08:08

Rio Tinto Group, the world's second largest iron ore exporter, agreed to a 33 percent cut in contract prices with Japanese steelmakers, the first decline in seven years as the global recession slashes demand.

Nippon Steel Corp, the world's second biggest steelmaker, agreed to pay Rio 97 cents a dry metric ton unit for its benchmark product for the year starting April 1, London-based Rio said yesterday in a statement.

Rio's shares reversed a decline and rival Australian iron ore exporters surged on optimism the agreement will set a global benchmark for contract prices, which had risen more than fivefold since 1999.

Chinese steel mills, the world's biggest producers, however, are likely to resist the accord after calling for prices to be halved.

"What looks like a pretty good deal might end up being a bit tougher when they come across the Chinese," said Mark Pervan, a senior commodity strategist at Australia & New Zealand Banking Group Ltd in Melbourne.

The price accord is the second-highest on record, according to calculations. "The fines settlement is better than most brokers' expectations for a 35 to 40 percent fall," Marcus Padley, a broker at Paterson Securities Ltd., wrote in his trading newsletter, Marcus Today.

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Nippon Steel spokesman Hayato Uchida confirmed an agreement with Rio at the cited prices. JFE Holdings Inc, Japan's second biggest steelmaker, agreed to the same prices, according to a spokesman for the company, who declined to be named. Kobe Steel Ltd, Japan's fourth-largest producer, also reached an agreement for a 33 percent cut, said Ryuichi Nakagami, a company spokesman.

Sumitomo Metal Industries Ltd, Japan's third-largest steelmaker, also reached an agreement with Rio on the same conditions.

Posco, Asia's third biggest steelmaker, is still in talks with Rio, Choi Doo Jin, a spokesman for the Pohang, South Korea-based company, said.

The worst recession since World War II has slashed demand for automobiles and building materials, cutting profits for steelmakers and ore producers. Spot prices for iron ore into China have dropped 66 percent from their February 2008 record.

Vale SA, the world's biggest iron ore producer, last week said it was waiting for rival BHP Billiton Ltd, the third biggest exporter, and Rio to reach an accord before deciding prices for the year. Melbourne-based BHP spokeswoman Kelly Quirke declined to comment on the progress of BHP's iron ore talks with customers.

China, the world's biggest consumer of iron ore, has previously wanted a price cut of between 40 percent and 50 percent.