CVRD-Baosteel finalize ore talks before expected

The world's number one iron ore miner, Companhia Vale do Rio Doce (CVRD), and China's largest steelmaker, Baoshan Iron and Steel Group (Baosteel), have completed their talks on the April 2007-April 2008 iron ore price, agreeing on a 9.5 percent increase. The price rise, which will also be valid for other steelmakers, means that for the first time in history a Chinese company has set the benchmark price for the annual iron ore contracts. Both other major iron ore suppliers, Rio Tinto and BHP Billion, and other mills around the world are expected to accept the same price increase rate. According to the agreement, on a dry metric ton (dmt) basis, the new price is $0.7320 per fe unit for fine ore from Carajas (SFCJ) and $0.7211 per fe unit for sintered ore from Southern Systems (SSF). This means that the new price for ex-Carajas fine iron ore with 63.5 percent iron content will be $46.5/dmt FOB. Meanwhile, no announcement has been made regarding pellet or lump ore prices. For the Chinese mills, the increase in the FOB price of iron ore does not mean an increase in costs. This is because freight charges also constitute an important part of the steel mills' costs. Meanwhile, the continuous appreciation of the Chinese currency has also relieved the cost pressure for the Chinese mills. Formerly, analysts were forecasting an increase between 5 and 10 percent, and the increase is near to the higher end of their forecasts. Baosteel had also tried last year to set the price, but could not manage as the negotiations took a long time.