Brazil's Vale pushing or 90pc increase in iron ore prices
THE world's top iron ore producer, Brazil's Vale, is reportedly seeking a 90 per cent increase in prices and trying to shift from annual to quarterly contracts.
Reports from Japan said steelmakers there were opposed to prices of more than $US100 a tonne but were likely to accept prices above the record of about $US80 agreed in 2008.
Spot prices have exceeded $US120 a tonne thanks to increased demand.
Macquarie analyst Brendan Harris said iron ore prices were likely to move significantly higher -- well ahead of consensus estimates -- because of tight markets.
Producers were expected to capture the lion's share of the difference between benchmark prices and spot prices, which was about 105 per cent, Mr Harris said.
He said that while many commentators claimed steelmakers could not absorb an increase of 90 per cent, recent moves by the customers suggested the opposite.
"In fact, last month's attempt by the Japanese mills to preferentially push significantly higher steel prices through to their customers prior to any raw material settlement, is almost unprecedented," Mr Harris said.
Reports yesterday said Vale had told Chinese steelmakers it planned to drop the annual benchmark system.
Vale had sent a note to major Chinese steelmakers, but they had not decided on a response, according to Bloomberg.
Speculation that the benchmark system was on the way out increased this week after BHP Billiton, which has been pushing quarterly market-linked pricing, secured a quarterly deal for its coking coal contracts with Japan.
PricewaterhouseCoopers global mining leader Tim Goldsmith said iron ore negotiations were increasingly combative, to no one's benefit. "It's right that people are considering finding ways where there is not such vitriolic relationships between suppliers and customers," he said.
Increased speculation about the significant jump in prices came as the Australian Bureau of Agricultural and Resource Economics revealed exports of iron ore and coal rose to record levels in the December quarter because of strong demand from Asia. Iron ore export volumes for the quarter were more than 98 million tonnes and coal exports exceeded 74 million tonnes.
Despite a 9 per cent rise in the dollar, Australia's energy and mineral resources export earnings increased by 1 per cent to $31 billion in the December quarter of 2009, ABARE said.
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