The Rising Influence of Rising Affluence

[DewDiligence]

VALE Cuts Iron-Ore Prices to Japan/Korea by Smaller % Than Rio Tinto

[This news was interpreted as modestly bullish and VALE’s shares rose 0.5% today. The big question is how much VALE will charge Chinese steelmakers and whether there will even be a benchmark price for these buyers. VALE previously stated that it will be more than happy to sell at the spot-market price if a benchmark price cannot be negotiated with the Chinese buyers—see #msg-38315328 for a related discussion.]

http://www.reuters.com/article/marketsNews/idAFN1044975120090610

›Wed Jun 10, 2009 2:51pm EDT

June 10 (Reuters) – Brazilian mining giant Vale on Wednesday said it cut prices to steelmakers in Korea and Japan, following a similar price cut by Australian rival Rio Tinto.

The move, which responds to a slowing global demand for iron ore, gives Vale a strong position in upcoming talks with Chinese steel mills that are seeking even larger price reductions.

The following are details of Vale's price arrangement with Korea's POSCO and Japanese steelmakers Nippon Steel, Sumitomo Metal Industries, Kobe Steel Ltd, and Nisshin Steel Co.

* IRON ORE FINES: Vale reduced fines prices 28.2 percent from 2008 levels, taking the new reference price per dry tonne Fe unit to $0.85 for Southeastern System fines (SSF), $0.90 for Carajas sinter feed (SFCJ). [The Carajás mine in the northern state of Para produces VALE’s highest-quality iron ore and hence it warrants a slightly higher benchmark price than VALE’s other iron mines, which are collectively called the “Southeastern System.”]

This is a slightly smaller reduction than the 33 percent cut that Rio Tinto gave to the same countries [#msg-38113508].

Australian miners in 2008 won a bigger price hike than Vale in benchmark talks that took place just as commodities prices fell due to the financial crisis.

Brazil's iron ore is generally considered higher quality than Australian ore and tends to receive a premium.

Analysts say fines are a key part of Vale's production portfolio. Chinese steel makers rely heavily on fines.

* IRON ORE LUMPS: The company cut lumps prices by 44.5 percent from last year's price for a new price of $0.99 for Southeastern System lump and $1.01 for Southern System lump.

Analysts say Vale, as well as Rio, rewarded Japan and Korea for honoring commitments they made last year to buy iron lumps by giving them a considerably larger cut than for the fines heavily used by China.

Chinese buyers were quick to defer annually contracted cargoes when prices on the relatively new but growing spot market were more attractive.

* PELLETS: Vale cut the price for blast furnace pellets by 48.3 percent from 2008 levels for a new reference price per dry tonne Fe unit of US$1.1043.

Analysts said the large cut in pellets price was not surprising because the product, which has more specific uses and is less fungible, has been among the hardest to sell amid slowing demand for ore.

With lower prices, Vale could boost production from pellet plants that were slowed or idled due to the limited demand.

Vale in May said pellets accounted for 8.1 percent of its gross first-quarter revenues, compared to 38.7 for different types of iron ore. The earnings statement did not say how much of the gross iron revenues came from fine and lump sales.‹