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China negotiates 35% iron ore fines price cut with FMG (08/17/09)

BEIJING, Aug. 17 (Xinhua) -- The China Iron and Steel Association (CISA) has reached an agreement with Anglo-Australian Fortescue Metals Group Ltd. (FMG) on a 35.02-percent price cut for iron ore fines, said an association official Monday.

CISA secretary-general Shan Shanghua said the association had reached an agreement with FMG for July-December imports of Fortescue's rocket fines (on an FOB basis) for 94 U.S. cents a dry metric tonne unit (dmtu).

Australia's Rio Tinto charges 97 U.S. cents a dmtu for its fines.

The agreed price represented a 35.02-percent price cut on 2008-2009 iron ore fines contracts and a 50.42-percent cut in the price of iron ore lump, said Shan.

Liu Zhenjiang, Party secretary of CISA, said the agreement was an important step in price negotiations for China's iron ore imports but there was still a long way to go.

The Ministry of Commerce welcomed the agreement on Monday. The ministry's spokesman Yao Jian said at a press conference that the agreement reflected the wishes of both sides and was "a new exploration" of the iron ore price negotiations.

Analysts said the new deal was a further successful attempt by China to break the impasse with the world's three biggest iron ore miners, Australia's Rio Tinto and BHP Billiton and Brazil's Vale, in negotiations over iron ore contract prices.

FMG said the agreement commits China to acquire about 20 million wet metric tonnes from Fortescue between July 1 and December 31.

Under the agreement, CISA has guaranteed priority will be given to FMG to negotiate iron ore prices for 2010 if annual pricing negotiations are conducted.

Talks will start in December and China has not decided if the negotiations would be for annual or biannual prices, Shan said.

On May 26, Rio Tinto agreed on a 33-percent price cut on iron ore, a key ingredient in steelmaking, with Japanese and Korean steel mills. Under the traditional 'benchmark' price-setting system, the agreement should dictate a global base price for all mills, including those in China, the world's biggest steelmaker.

China rejected the price cut. China had previously called for a cut of 40-45 percent.

Luo Bingsheng, executive vice president of CISA, said China will apply the newly-agreed price in talks with BHP, Vale and Rio.

China imported a record 58.08 million tonnes of iron ore in July, up 55 percent year on year. From January to July, the country's iron ore imports soared 31.8 percent to 355.25 million tonnes, according to customs statistics.

Li Yirong, minister for industry and information technology said as the world's largest iron ore buyer, China should have more say in the global iron ore trade.

He said he hoped the world's major iron ore suppliers would consider both their own long-term interests and their long-term cooperation with China's steel industry.

A Dow Jones report said Rio did not see this pricing agreement as relevant to its pricing for fiscal 2009.

FMG is Australia's third largest iron ore producer. Its 2009 annual output capacity was expected to reach 50 million tonnes -- one tenth of China's total demand, which is roughly 500 million tonnes, according to CISA. China's Hunan Valin Iron and Steel Group holds a 17.4-percent stake of Fortescue, making it the second-largest shareholder of the Australian company.



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