Firstenergy Corp. (FE)

[mhlld]

Vale turns up heat on iron ore prices
By Javier Blas

Published: March 11 2010 19:17 | Last updated: March 11 2010 19:17

Vale of Brazil, the largest iron ore miner, has asked some of the world’s top steel producers to pay 80-100 per cent more for their ore supplies in 2010-11, according to the association of the European steelmakers.

Eurofer’s statement is the first confirmation that iron ore miners, including Vale, Rio Tinto and BHP Billiton, are seeking a record price increase for iron ore supplies.

Gordon Moffat, Eurofer director general, told the Financial Times that Vale had proposed an 80-90 per cent increase in the cost of lower quality ore fines to European steelmakers and a more than 100 per cent increase in the price of higher quality ore lumps and pellets. “Rio Tinto and BHP Billiton are so far sitting on the sidelines,” he said.

In a statement, Eurofer said: “The European steel industry is outraged at the announcement by the iron ore industry to massively increase prices.”

Mr Moffat added that Vale wanted to move ore supply deals from annual to quarterly contracts. He declined to name the steelmakers that have received the offers, but ArcelorMittal and ThyssenKrupp are the two key members of Eurofer and traditionally have led the negotiations between European mills and the miners.

Vale did not respond to calls seeking comment.

The demand for a record price increase in the bulk commodity used in steelmaking comes as iron ore trades near an 18-month high on the spot market. Spot Australian benchmark iron ore – 62 per cent iron content – rose on Thursday to $131.60 a tonne, according to swaps cleared at the Singapore Exchange. Excluding freight costs from Australia to China of about $10 a tonne, current spot prices are about double the $60-a-tonne level at which the annual contracts were settled for 2009-10.

Spot prices have surged 120 per cent over the past year as Beijing stepped up international purchases to offset lower domestic production.

Mining executives have already warned that so-called benchmark annual contracts had to reflect higher spot market prices.

The steelmakers and the miners are running out of time to reach an agreement before the current 2009-11 contracts expire on March 31. Negotiations could continue after the cut-off date, with prices adjusted retroactively.

The steelmakers are ferociously resisting the price increase, arguing that the spot market does not reflect the iron ore market’s true supply and demand balance. Mr Moffat said price increases of the magnitude proposed would have a “significant impact on steel prices”, suggesting mills would raise prices by about €100 a tonne from current quotes of about €450 a tonne for benchmark hot rolled coil.

http://www.ft.com/cms/s/0/6754fcb0-2d3d-11df-9c5b-00144feabdc0.html