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Chinese warned of record rise in ore price

Rio Tinto and BHP Billiton have asked their Chinese steelmaker customers to accept the largest ever increase in iron ore prices or risk the interruption of supplies from Australia.

Traders and industry officials said the mining companies have demanded price increases for their annual iron ore contracts in excess of the record 71.5 per cent rise of 2005 and were fighting for increases of 85-95 per cent.

Rio and BHP have warned their Chinese clients some annual contracts will expire next Monday and they would cease supply under the old terms. They have told them the ore would instead be sold into the spot market, where prices are higher.

The bold step indicates that the heated annual price negotiations, already well beyond their traditional conclusion date, are set to move into a hostile phase.

(...)

If Rio and BHP carry out their threat of diverting shipments into the spot market, analysts said the steelmakers would be likely to retaliate by stopping buying for as long as possible. Although China has record high iron ore inventories, the country depended heavily on imports, they said, and it would not be long before it had to cave in and buy into the spot market.

Morgan Stanley said in a report the ore market was under "unprecedented" pricing developments and . . . "remains very tight and in significant deficit".

and this afternoon:


Rio Gets at Least 80% More for Iron Ore From China's Baosteel

June 23 (Bloomberg) -- Rio Tinto Group, fending off a $171 billion hostile bid from BHP Billiton Ltd., said China's largest steelmaker will pay at least 80 percent more for iron ore, reflecting freight costs from Australia.

Rio and BHP have demanded for the first time in the Asian market a bigger gain than Brazil's Cia. Vale do Rio Doce, the world's largest exporter of the raw material, because their Australian ore costs less to ship. Chinese mills have failed to arrest six years of price increases that drove up costs.

Baosteel Group Corp. agreed to pay Rio $144.66 a metric ton for so-called Pilbara blend fines for the year started April 1, London-based Rio said today in a statement. The Shanghai-based steelmaker will also pay Rio $201.69 a ton for Pilbara blend lump, 97 percent more than a year ago.



In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Jun 23rd, 2008 at 10:41:47 AM EST

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