Nippon Steel Corp., the world’s second-largest steelmaker, may be close to agreeing a 30-35 per cent cut in iron ore contract prices with producers including Rio Tinto Group, said two people familiar with the talks.
A possible benchmark price is likely be agreed within weeks for the year started April 1, one of the people said, declining to be identified because the talks are confidential. Rio and Cia. Vale do Rio Doce, the world’s two biggest ore exporters, are in Tokyo for talks with mills this week, the other person said.
An agreement with Japanese mills would be the first contract price settlement in Asia this year and will end six years of gains to last year’s record. The global recession has curbed demand for steel, forcing producers to offer discounts. “A benchmark settlement may be close with investor consensus anticipating 30 per cent or 35 per cent between Australia and Japan,” Citigroup Inc. analyst Alexander Hacking said in a May 19 report.
Rio rose 2.9 per cent to A$66.64 close on the exchange. Nippon Steel shares fell 1.1 per cent to 349 yen in Tokyo. Talks for a price settlement are nearing a conclusion, Vale’s chief executive officer Roger Agnelli said May 18. Company spokesman Fernando Thompson declined to comment further in an e-mail.
BHP Billiton Ltd. and Rio, which mine most of their iron ore in Australia, last year won annual price increases of 85 percent or more after demand surged, more than the 65 percent Vale received. London-based Rio offered a temporary 20 percent price cut to Asian steelmakers last month as annual talks stalled, four executives with knowledge of the deal said.
Goldman Sachs JBWere Pty has forecast benchmark prices may drop 40 percent this year because of lower demand for cars and building materials, according to a March 17 report. Steel output in Japan, the world’s second-largest producer, tumbled 44 percent last month, the Tokyo-based Japan Iron & Steel Federation said today in a statement.
Spot prices for iron ore rose to $64 a tonne for Australian fines last week, according to Metal Bulletin prices. That’s a 30 per cent discount to last year’s record contract price for Rio’s benchmark ore of about $91 a tonne.
Melbourne-based BHP, the world’s largest mining company, sold 28 per cent of its iron ore at the cheaper spot price in the nine months ended March 31 after customers deferred deliveries ahead of the forecast decline in contract prices.
