【ABC】Brazilian giant secures better iron price in Europe

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Brazilian giant secures better iron price in Europe                                                                                                
http://www.theaustralian.news.com.au/business/story/0,28124,25817019-5018066,00.html


Matt Chambers | July 22, 2009



CHINA'Shopes of securing cheaper iron ore contract prices from Rio and BHPhave taken another hit, with Brazilian giant Vale restricting Europeancontract prices to those agreed to by better-placed Japanese and Koreansteel mills.
                                       

                                        Valesaid yesterday it had locked in 2009 contracts with Europeansteelmakers ThyssenKrupp, Lucchini and Erdemir at a 28.2 per cent pricedrop, realising a better relative price than the 33 per cent drop Rioagreed to with Japan, Korea and Taiwan.

The prices are at the same discount Vale locked in with Japanese andKorean steelmakers in June and wipe out the so-called freight premiumBHP and Rio secured with Asian mills during last year's boom. TheEuropean contracts, signed after China's crackdown on iron ore tradingthat resulted in the detention of Rio iron ore executive Stern Hu andthree Rio staff this month, further undermine China's hopes of gettinga bigger discount off Vale.

Iron ore spot prices into China continue to rise, spurred on byconfusion over China's crackdown and signs Japanese and Korean demandis returning.

Metal Bulletin's monitored prices hit a nine-month high $US91 a tonne last week.

There have been reports the government-controlled China Iron &Steel Association was turning to Vale, after refusing to bow to Rio's33 per cent cut, and until recently had wanted price cuts of 40 percent or more.

But the European settlement indicates Vale is still not prepared toaccept even the 33 per cent cut agreed to by Rio and its Asiancustomers, let alone a bigger one, as it claws back lost ground fromlast year's price talks.

CISA yesterday dismissed reports it was in talks with Vale to get a better price.

Industry newsletter Steel Business Briefing said a senior CISAofficial strongly denied Chinese media reports that CISA had stoppednegotiations with Rio and had begun bargaining with Vale instead,seeking a bigger price cut and offering to purchase more ore inexchange. Brazilian lump iron ore into Europe was discounted by 44 percent, which was the same cut Rio got for its lump from Japanese mills.

Lump iron ore is more expensive than fines but is suffering bigger price cuts than fines because China is not a big importer.

The European settlement comes amid signs the steel sector there hasbottomed out and buyers are returning after a long period ofdestocking.

Macquarie says June iron ore exports from Australia and Brazil tocountries other than China doubled from the previous four months.

This will place even more pressure on Chinese iron ore imports,which have surged this year as high-cost domestic mines shut down.

Increased non-Chinese demand could see high-cost mines reopening,but spot prices would have to head back to above $US100 a tonne.

An Australia-based Vale spokesman did not return calls yesterday.Illustrating how the 33 per cent cut achieved by non-Chinese Asiansteel mills is looking more and more attractive as spot prices rise,Goldman Sachs JBWere analysts have said they expect iron ore spotprices to remain above contract prices for at least 12 months.

Investors shrugged off concerns about Rio's shipments into China.

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