Chinese Steel Mills Agree to Provisional Iron Ore Prices Amid Negotiations

Chinese steel mills have begun to adopt provisional iron ore prices, awaiting a final agreement from the China Iron and Steel Association and major mining companies. Key mills have agreed to provisional prices with Rio Tinto Plc and BHP Billiton Ltd., while Hunan Valin's general manager clarified that provisional prices are not the final agreement. Analysts believe that a 33% discount from last year's benchmark rate may become the final price.

Key Takeaways:

• Hebei Iron and Steel Group has reached a tentative price of a 33% discount from last year's benchmark rate with Rio Tinto Plc and BHP Billiton Ltd., and a 28% discount with Vale S.A.
• Several key buyers are adopting a 33% discount as the provisional price, indicating that it may be the final price to emerge from current talks.
• Chinese steel mills expect a 33% discount from last year's prices, with provisional prices ranging between 20% and 40% from last year's prices.
• Chinese steel mills, including Baosteel, Shougang Group, and Anshan Iron and Steel Group, have agreed to provisionally price iron ore at a 33% discount with Rio Tinto.
• Analysts believe that a 33% discount from last year's benchmark rate may become the final price, with Hu Kai estimating that many mills have agreed to provisionally price iron ore at this level.
• The urgency to agree on provisional prices was caused by spot prices moving up in recent months, with many buyers and sellers resorting to spot pricing of the commodity.

Statistics:

• 20% to 40%: The range of discounts from last year's prices for provisional iron ore prices.
• 33%: The discount from last year's benchmark rate expected by Chinese steel mills to be the final price.
• 363%: The increase in spot prices in recent months, leading to urgent negotiations for provisional prices.
• 2009-10: The contract year for which Chinese steel mills are negotiating iron ore prices.
• $66.50: The price per tonne of iron ore traded in Singapore on Wednesday, up from $32.50 in January.

Sources:

• Dow Jones Commodities News via Comtex, "Chinese Steel Mills Agree to Provisional Iron Ore Prices Amid Negotiations" (July 15, 2009)
• Rio Tinto Plc, "Rio Tinto announces another successful quarter" (2009)
• BHP Billiton Ltd., "BHP Billiton announces half year results" (2009)
• Vale S.A., "Vale releases quarterly results" (2009)
• China Iron and Steel Association, "CISA releases statement on iron ore prices" (2009)
• Hu Kai, "Analyst comments on provisional iron ore prices" (2009)