Fortescue Metals yesterday announced a price agreement with the China Iron and Steel Association (CISA) and the Baosteel Group for all iron ore sold to China between 1 July and 31 December 2009.
The parties agreed to a price of US94 cents per dry metric tonne unit for Fortescue’s Rocket fines, which equates to around US$55.50 per dry tonne of Fortescue grade iron ore.
This price is around three cents lower than the benchmark agreed by BHP Billiton and Rio Tinto with Korean and Japanese steel mills.
According to Fortescue chief executive Andrew Forrest, the agreement breaks the stalemate that has enveloped the Chinese iron ore industry for the past 12 months.
“This groundbreaking agreement cements the strength of the bilateral relationship between Australia and China, in which mutual issues can be resolved and future opportunities identified,” he said.
“It also creates a realistic and agreed iron ore price that delivers value for all parties and provides strong support for Fortescue’s continued growth.
“The ongoing market speculation has promoted unprecedented iron ore and steel price volatility and in turn has created extreme production uncertainties.”
The Chinese steel mills will purchase around 20 million wet metric tonnes over the duration of the deal, the company said in a statement.
As a condition of the agreement, the mills will have to present acceptable finances by 30 September.
Fortescue estimates these will be worth between US$5.5 billion and US$6 billion.
In a teleconference yesterday, Forrest told journalists he had no doubt that the finance would come through.
“There is enormous goodwill for this deal in China,” he said.
“This deal is the result of the very deep relationship that Fortescue has built up with the Chinese steel industry since 2003.”
Forrest told journalists it would be “short-sighted in the extreme” to suggest the company had put its own commercial interests ahead of those of Australia.
“The price cut is meaningful in China but it is a small discount to the Rio benchmark,” he said.
He also rejected suggestions that Fortescue was being used by CISA to gain the upper hand in its ongoing negotiations with Rio and BHP.
“We are not a pawn in anyone’s game,” he said.
“This deal will facilitate Fortescue’s plan to become a significant iron ore producer.”