On May 28, South Korean steelmaker POSCO, the world's fourth largest steel producer, announced that it has agreed a 33 percent reduction on the fine iron ore price with Australian miner Rio Tinto, the world's second largest iron ore exporter, thus adding to pressure on China to accept the cut in question as the benchmark rate.
The reduction is similar to the recent agreement between Rio Tinto and Japanese steelmaker Nippon Steel, but not as deep as the 40-45 percent drop requested by China's steelmakers.
According to the agreement, retroactive to the contract year that began on April 1, POSCO has agreed to pay US cents 97 per dry metric ton unit for iron ore fines, down by 33 percent from a year ago. Meanwhile, the price of iron ore lump has dropped by 44 percent to US cents 112 per dry metric ton unit.
POSCO, which imports up to 50 million mt of iron ore per year, is also expected to reach an agreement on contract prices of iron ore with other major iron ore exporters such as Australia's BHP Billiton and Brazil's Vale. The three major producers account for 85 percent of POSCO's iron ore imports.
The price cut in iron ore contracts, the first in seven years, is expected to reduce costs for POSCO, which cut production by 30 percent in December last year, the first cut in its 41-year history.
In the first quarter of 2009, POSCO posted a $245 million net profit, down by 69 percent year on year, its largest profit drop in eight years, after the global recession lowered demand from automakers, builders and electronics companies.