By Jason Simpkins
Rio Tinto PLC (RTP), the world's second-largest iron ore producer, indicated that it was not satisfied with the 65% increase in the benchmark ore price settled on by Brazil's Vale (RIO), the International Herald Tribune reported.
Traditionally, world iron ore prices have followed the annual benchmarks established by one of the three leading iron ore producers – Vale, Rio Tinto, and BHP Billiton Ltd. (BHP) – in their negotiations with major global consumers.
This year, Vale took the lead, negotiating deals with Nippon Steel Corp. of Japan, and South Korea's Posco (PKX) that allowed for a 65% increase in the price of Itabira ore, and a 71% increase in the price of its higher quality Carajas ore. The contracts will go into effect April 1.
But Rio Tinto, which reportedly produced a company record 145 million tons of iron ore last year, thinks it can do better.
"The group is seeking further customer clarification about the settlements, and in particular the settlement over Carajas ore, which is the relevant reference ore for Rio Tinto products,", chief executive of the company's iron ore projects said in a statement.
Rio Tinto, an Australia-listed company, believes its proximity to Asian markets gives it greater leverage to charge higher prices.
"Rio Tinto will continue to negotiate to obtain a freight premium, to reflect its proximity to Asia and its major customers," Walsh said.
Freight accounts for 30% of the landed cost of Australian iron ore in China, but close to 50% of Brazilin iron ore, according to IHT. China, the world's largest steel producer and consumer, imported 383 million metric tons of iron ore in 2007, up 56.8 million tons, or 17.4%, from the previous year, according to the China Iron and Steel Association.
A boom in commodity prices caused the spot price of iron ore to triple in the past five years. While benchmark iron ore prices are currently just $60 a ton, the spot price of iron ore is just under $200 a ton.
News and Related Story Links:
- International Herald Tribune:
Rio Tinto balks at benchmark ore price deal
- Money Morning:
Mining Companies Stock Up On Iron Ore Assets