SAO PAULO -(Dow Jones)- Brazilian mining giant Companhia Vale do Rio Doce (RIO), or CVRD, said Tuesday that the iron ore price deal between Australian miner BHP Billiton (BHP) and Chinese steelmakers confirms the benchmark for 2006 price talks established in May.
"We are happy with the deal between BHP and Chinese steelmakers," CVRD spokesman Fernando Thompson told Dow Jones Newswires. "The deal ratifies the benchmark established by CVRD."
Earlier Tuesday, official Chinese news agency Xinhua reported that Shanghai Baoshan Iron & Steel Co (600019.SH) had agreed to a 19% increase in iron ore price contracts with Australian mining giant BHP Billiton (BHP). In addition, Baoshan would announce similar deals with Rio Tinto (RTP) and CVRD on Wednesday and Thursday, respectively, according to the report.
In a statement on its Web site, BHP confirmed the accord with Baoshan, which led Chinese steelmakers in price negotiations this year.
The 19% price increase was established as the benchmark for 2006 price contract negotiations in May, when CVRD reached a flurry of deals with such global steelmakers as Arcelor (5786.FR), Mittal Steel (MT), South Korean steelmaking giant Pohang Steel Corporation (PKX), or Posco, German steelmaker ThyssenKrupp AG (TKA.XE), Italian steelmaker ILVA SpA and Japanese steelmakers.
The 2006 price accords also reduced the price of iron pellets by 3%. The pellets are prized by steelmakers for their efficient use in blast furnaces.
The agreement with Chinese steelmakers ends a tense standoff in 2006 price negotiations, which had become the second-longest on record. Chinese steelmakers had hoped to use their status as the world's largest consumers of iron ore to influence price negotiations this year.
However, when China balked at paying a significant increase in 2006 price talks after a 71.5% hike in 2005, CVRD reached an accord with Germany's ThyssenKrupp that set the benchmark price rise at 19% for this year's contracts.
Chinese steelmakers had said they could only stomach an increase of 10%, given tough conditions in the domestic steel market.
However, global iron ore miners pointed to the continued rise in Chinese iron ore imports as a driver for an imbalance in supply and demand in the seaborne iron ore market.
China's iron ore imports rose 21.3% in the January-May period to 132.63 million metric tons compared with the year-ago period, according to the latest data from the Chinese Customs Service.
Iron ore imports in May were at 24.57 million metric tons. Year-ago data weren't available.
The rapid urbanization of China, which will move 300 million people into cities from rural regions, is driving demand for global commodities and raw materials.
CVRD said that it expects China to import 325 million tons of iron ore this year, an increase of 50 million tons from 2005. Brazil is China's third-largest iron ore supplier, after Australia and India.
At 1507 GMT, CVRD's local shares traded 0.2% lower at 38.60 Brazilian reals ($17.19) on the Brazilian Stock Exchange, or Bovespa. The overall market as measured by the benchmark Ibovespa stocks index was 0.4% lower at 33,749 points.
-By Jeff Fick, Dow Jones Newswires; 55-11-3145-1481; [email protected]
(END) Dow Jones Newswires
June 20, 2006 11:45 ET (15:45 GMT)
Copyright (c) 2006 Dow Jones & Company, Inc.
SHN Price at posting:
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