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Far East steelmakers agree to pay 65% more for iron ore

Monday, February 18th 2008 - 21:00 UTC
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Vale do Rio Doce Company Vale do Rio Doce Company

Japanese and South Korean steel mills have agreed to pay Brazilian miner Vale do Rio Doce 65% more for iron ore this year. Japan's Nippon Steel and South Korea's Posco said they would pay Vale 78.90 US dollars a ton from April.

The settlement means iron ore prices will hit a record for the sixth year in a row on continued demand for steel to power China's construction boom. Mining corporations Rio Tinto and BHP Billiton are also keen to raise prices. Since 2000, China has been a huge importer of steel after its domestic mining failed to keep pace with its rush to industrialize. This phenomenon has supported the price of spot iron ore, which has almost tripled over the past decade. There have been fears that steel makers profits could be stunted by their inability to pass on all the costs to customers, particularly as shipping costs have risen too. But shares in Nippon Steel, JFE Holdings, which owns JFE Steel, and Posco all rose on relief that the 2008 price was not greater. "The market was relieved now that one of the negative factors weighing on the stock prices has been played out" said Takashi Aoki, vice president at the equity investment division of Mizuho Asset Management But miner Rio Tinto believes it can secure an even higher price for its ore than the benchmark established between Brazil and Japanese and South Korean steelmakers. In a statement to the Australian Stock Exchange, Rio says it is negotiating for an even higher price because it is cheaper for Asian steel mills to ship iron ore from Australia than from Brazil. Mining Analyst Peter Strachan says the Japan Korea deal will set a new world price threshold. "I think once one of the major customers capitulates and says ok we're prepared to pay this price, then the others will usually fold in behind that and that will set the bench mark for others to set going forward." he said.

Categories: Economy, International.

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