UPDATE: Vale, Rio Tinto Likely To Raise Q1 Iron Ore Prices -Platts
The world's biggest iron ore miners, Vale SA (VALE) and Rio Tinto Plc (RIO), are likely to raise prices of their key products by 7% and 8%, respectively, for the first quarter of 2011, global iron ore reference-price provider Platts said.
The analysis from Platts indicates that global steelmakers will be facing greater pressure from costs of raw materials.
The increases will push iron-ore term supply contract prices back to peak levels seen in the third quarter of this year, when most Chinese steelmakers swung into net losses due to high raw material
prices.
The Platts index, adopted by most Chinese steelmakers, indicates that Brazil's Vale may price Carajas fines with grade of 66% at $172.02 per dry metric ton the first quarter, including freight to China's Qingdao harbor, up from $160.76/ton in the current quarter.
Tubarao fines with grade of 65% could be sold at $166.31/ton on a cost-and-freight basis to Qingdao, up 7% from the current $154.86/ton, Platts said.
For customers that buy on a free-on-board Brazil basis, ocean freight, unilaterally fixed by Vale at $21 a wet metric ton, is deducted from the C&F Qingdao price. Using this method, Carajas and Tubarao fines would be priced at $149.07 and $143.85/ton FOB Brazil, Platts said.
Anglo-Australian miner Rio Tinto could raise the price of its flagship product--Pilbara-blend fines with grade of 62%--by 8% to $136.94/dry metric ton in the first quarter, free-on-board Australia, compared with $127.18/ton in the current quarter. The price of Yandicoogina fines with 58% iron content could rise to $128.10/ton from $118.98/ton, Platts said.
Both Vale and Rio's pricing formulas for first-quarter contracts are based on average index values from September-November, it said.
"The price hikes are predictable according to the spot prices of recent months," said Xu Guangjian, an analyst with research house Umetals.
"Overall losses for China's steelmakers are possible, though currently market participants are mainly confident of the first-quarter steel market," he said.
Rio Tinto and Vale moved to sell iron ore based on average quarterly prices in April, shifting from a decade-old annual benchmark pricing system, while BHP Billiton Ltd. (BHP) has been actively pushing for a more flexible pricing mechanism based on monthly or even spot prices.
Executives from Rio and Vale both expressed their willingness to continue the current quarterly system, and Xu Lejiang, president of Chinese steel giant Baosteel Group Corp. also confirmed that the system is likely to remain in place at least for one more quarter.
Spokesmen with Rio and Vale weren't immediately available to comment.
-Yajun Zhang contributed to this article, Dow Jones Newswires; (86 10) 8400-7712; yajun.zhang@dowjones.com
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