Vale reaches price agreement with European steel makers

Price negotiation between European steel makers and Brazilian iron ore giant Vale will not affect Australia's negotiations with China.

Suggestions that this week’s price negotiation between European steel makers and Brazilian iron ore giant Vale will affect Australia’s negotiations with China are incorrect, DJ Carmichael resource analyst James Wilson told MINING DAILY.

“If Vale does a deal with the European steel makers it does not really affect Australia too much,” he said.

“The European market is nowhere near as big as Australia’s.”

Vale this week secured 2009 contracts with European steelmakers ThyssenKrupp, Lucchini and Erdemir at a 28.2% price cut, which represents a better relative price than the 33% cut Rio Tinto agreed to with Japan, Korea and Taiwan.

China has been holding out for a price cut with Rio of around 40% and has had to look to the spot market as negotiations have stalled.

According to Wilson, China is highly unlikely to look to Brazil instead of Australia for more iron ore.

“To send ore from Brazil to China it will cost around US$40 a tonne. So if benchmark ore fines is US$61 a tonne, it will cost US$105 a tonne for that ore to bring it from Brazil to China,” he said.

“From Australia it is about US$15, so we are around US$30 in front just by our location.”

Wilson believes that China will not continue buying ore on the spot market for much longer, but may not necessarily relent to Australia’s 33% price cut either.

“If we go to just a spot market that is what all of the majors wanted in the first place, so I can not see the Chinese going toward that,” he said.

“I think there will be some sort of hybrid system, such as benchmark plus renegotiations,” he said.

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