Sydney - Monday - February 22: (RWE Aust Business News) - Consumers will pay as iron ore price rise hits cost of steel. The price of cars, refrigerators and buildings will rise this year after steelmakers agreed a dramatic increase in the price of their raw materials. The latest round of iron ore price negotiations produced its first agreement yesterday when Vale, the Brazilian miner, said that it would sell to Japanese and South Korean steelmakers for at least 65 per cent more than in 2007. Other metals, such as copper, have their prices determined daily on the London Metal Exchange, but iron ore supply is controlled so tightly that the miners are able to negotiate prices with the biggest consumers only once a year. Soaring steel demand, particularly from China, which is undergoing a construction boom driven by its soaring economic growth, and constrained supply from Brazil and Australia, the leading producers, has led to this year's big increase in the price of iron ore. Its Itabira fine ore will increase in price by 65 per cent to $78.89 per tonne, while higher-grade ores will rise in price by 71 per cent. The price of iron ore is rising so fast that Rio and BHP want to break away from the rigid benchmarking system of previous years and sell more ore at spot prices, a market that barely existed a few years ago.
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Interfax-China reported that steel product prices rose steadily for around two months from October 2009 and the price of imported iron ore increased accordingly. The average reference CIF price for iron ore jumped from less than CNY 700 per ton to over CNY 1,000 per tonne during the period while the average reference CIF price for Indian iron ore grading 63.5% hit a high of USD 135 per tonne. As a result, a number of international research institutes modified their original forecasts that the 2010 long-term contracted iron ore benchmark price, between the three iron ore giants and Chinese steel mills, would rise by more than 20% from the 2009 price agreed with Japanese steel mills. As a result, the falling steel product prices brought down the spot Indian iron ore price which stands at less than USD 130 per tonne at present, still higher than the price of domestically produced iron ore. As the price of imported iron ore is higher than domestically produced iron ore, domestic iron ore miners are likely to ramp up production which will alleviate China's iron ore supply shortage this year. Overall Chinese iron ore miners will expand annual production by 30 million tonnes to 40 millions tonnes while Chinese steel mills will try to diversify their overseas iron ore suppliers in order to reduce dependence on the global iron ore giants.
