Baosteel Agrees to Near-Double Price for Iron Ore
96.5% increase seen as the new global benchmark
96.5% increase seen as the new global benchmark
Baosteel Group, China's largest steelmaker with an annual capability estimated at 22.5 million metric tons, agreed to pay Rio Tinto plc up to 96.5% more for iron ore — a decision certain to add intrigue to the booming global market for steelmaking raw materials. Because Baosteel represents all of China’s steel producers in negotiating iron ore supplies, the increase will affect all of Rio Tinto’s customers in China.
Also, because China is the world’s largest steel-producing nation, the increase is likely to influence the global spot prices for iron ore.
Finally, the new supply terms are likely to shape the future of the global mining sector, because Rio Tinto is the object of a hostile takeover attempt by rival BHP Billiton. BHP is still negotiating its iron-ore supply terms with Baosteel.
According to Rio Tinto, Baosteel agreed to pay $144.66/metric ton for the Pilbara blend of ore fines from Rio Tinto’s Hamersley mining operation in Australia, for the year that began April 1. That would be a rise of 78.9% over the rate paid during the 2007 contract period. And, it will pay $201.69/metric ton for the Pilbara blend lump ore, a rise of 96.5% over the 2007 agreed price.
"The agreement reflects the continuing very strong demand in the market for Hamersley's products," stated Rio Tinto Iron Ore Group CEO Sam Walsh. He predicted the new terms would be the 2008-09 benchmark for global iron-ore pricing.
The new contract indicates a rapid, ongoing surge in demand in the global iron-ore trade. In February this year, Baosteel agreed to a 65% increase in its ore charges to Brazil’s Vale — an agreement that also affects China’s other buyers. The same increase was accepted by steelmakers in Japan, South Korea, and Europe, making Baosteel the effective price-setter among global steelmakers.
Also, because China is the world’s largest steel-producing nation, the increase is likely to influence the global spot prices for iron ore.
Finally, the new supply terms are likely to shape the future of the global mining sector, because Rio Tinto is the object of a hostile takeover attempt by rival BHP Billiton. BHP is still negotiating its iron-ore supply terms with Baosteel.
According to Rio Tinto, Baosteel agreed to pay $144.66/metric ton for the Pilbara blend of ore fines from Rio Tinto’s Hamersley mining operation in Australia, for the year that began April 1. That would be a rise of 78.9% over the rate paid during the 2007 contract period. And, it will pay $201.69/metric ton for the Pilbara blend lump ore, a rise of 96.5% over the 2007 agreed price.
"The agreement reflects the continuing very strong demand in the market for Hamersley's products," stated Rio Tinto Iron Ore Group CEO Sam Walsh. He predicted the new terms would be the 2008-09 benchmark for global iron-ore pricing.
The new contract indicates a rapid, ongoing surge in demand in the global iron-ore trade. In February this year, Baosteel agreed to a 65% increase in its ore charges to Brazil’s Vale — an agreement that also affects China’s other buyers. The same increase was accepted by steelmakers in Japan, South Korea, and Europe, making Baosteel the effective price-setter among global steelmakers.
