Australia's third biggest iron ore miner Fortescue Metals Group Ltd. (Fortescue) has begun selling iron ore at 30 percent lower than the 2008 benchmark prices as no settlement was reached in the annual iron ore contract price negotiations before the start of the new Japanese financial year on Wednesday, April 1.
Commenting on the price reduction, Fortescue CEO Graham Rowley said, "Regardless of what price we sell it at today, it will be adjusted to the benchmark price when negotiations are concluded and therefore adjusted back to the beginning of April."
However, Mr. Rowley added, "We are expecting probably a reduction overall, looking at the spot market at the moment, of somewhere in the vicinity of say 30 percent. The iron ore price will be set with China in the relatively near future."
Iron ore contract negotiations began last year between the world's three biggest iron ore producers, BHP Billiton Ltd., Companhia Vale do Rio Doce, Rio Tinto Group, and the Chinese and Japanese steel mills to settle contract prices.
"It could very well be that the next benchmark is set between BHP and China. We've always said that we would be a price-taker and at this stage we are much happier with that position. That benchmark gets set and we will obviously honor those contracts in accordance with the price that is agreed," Mr. Rowley said.
Analysts expect the benchmark prices for Australian iron ore may drop to $55/mt in the year starting April 1, down from a record $91/mt in the previous year.