Vale-BHP venture cuts iron price to Krakatau Steel

Posted on 25 June 2009

Source: Reuters, June 15, 2009

Samarco, a joint venture between miners BHP Billiton BHP.L and Vale, said on Monday it cut iron pellets prices by 48.3 percent from last year's price for Indonesia's Krakatau Steel.


"With the conclusion of the negotiation, which reduces prices by 48.3 percent from their 2008 levels, the new price will be $1.2523 per metalic unit ... or approximately $84 per tonne," Samarco said in a press release.


The deal refers to direct reduction grade iron pellets, which are higher quality than blast furnace pellets.


Vale last week agreed to reduce iron ore prices for Japanese and Korean steelmakers, slashing the price of its blast furance pellets by 48.3 percent and reducing prices for fines and lumps grades of ore by slightly less.


The company said it has started price discussions with steelmakers in China, the world's largest importer of iron ore. China is expecting a 40-50 percent price cut, but analysts say it may settle for a reduction of around 33 percent.


Global iron prices are set through a benchmarking process in which the world's biggest miners -- Vale, BHP BHP.AL and Australia's Rio Tinto -- negotiate a price for the following year in direct talks with steelmakers.


The 40-year-old system has been weakened in recent years by the growth of spot market sales and increasing discussion of swap and futures markets for the key steel ingredient.


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