Tuesday May 26, 08:01 AM
Iron ore prices slashed under Rio Tinto-Nippon deal
SYDNEY (AFP) - Anglo-Australian mining giant Rio Tinto (LSE: RIO.L - news) said it had agreed on a drop in iron ore term prices of between 33 and 44 percent with Japan's Nippon Steel (Berlin: NPS.BE - news) for the 2009-10 contract year.
The price cut, in the first deal of the year which started April 1, is not as deep as the 40-45 percent drop China's steelmakers have been pushing for to reflect weaker market conditions.
Analysts said the Nippon deal could have little bearing on agreements with China, the world's biggest importer of iron ore, which believes it should now be setting the benchmark in the annual talks between miners and mills.
"The deal with Japan doesn't necessarily tell us anything about China," one Sydney-based dealer said.
"The benchmark pricing system is becoming a bit of a dinosaur. It's likely to continue to exist for Japan, but not necessarily China."
Other major miners such as BHP Billiton (LSE: BLT.L - news) and Companhia Vale do Rio Doce as well as key consumers such as Chinese steel mills, are still negotiating 2009-10 prices.
The deal with Nippon, the world's second-largest steelmaker, represents falls of 44 percent for lump prices and 33 percent for fines.
Rio Tinto said it would sell iron ore fines for 97 US cents per dry metric tonne, compared to 1.446 US dollars last year, and would charge 1.12 dollars a tonne for lump iron ore, down from 2.0169.
"We believe this settlement is a realistic outcome for both parties, one that reflects the global market for iron ore and the current challenging market conditions facing our customers," Rio's iron ore chief Sam Walsh said.
Walsh earlier told a mining conference that Rio's mines had been "flat out" meeting Chinese demand, with the global economic downturn and commodities price slump forcing the closure of smaller mining operations there.
- Dow Jones (news) newswires contributed to this report -
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