Arcelor Mittal sign iron ore contract with Vale

The world's largest steel maker Arcelor-Mittal has signed a new 2009 iron ore contract with Brazilian miner Vale even as Chinese steelmakers are locked in a pricing duel with the top three iron ore mining giants for a substantial reduction for this year's long-term price contracts. (See: Global iron ore miners locked in pricing battle with China)

Arcelor-Mittal signed the 2009 long-term contract for iron ore with Vale earlier on Monday 22 June at 28.2 per cent lower prices of for iron fines, 44.5 per cent lower for iron lumps and 48.3 per cent lower for iron pellets compared to last year.

The agreed prices between Arcelor-Mittal and Vale are in the same lines to the 2009 contract for supply of iron ore signed between Rio Tinto and Japanese steel maker Nippon Steel's and Korea's Posco in May, which had upset the Chinese steelmakers. (See: Chinese steelmakers upset with Nippon Steel's ore price-cut deal with Rio)

Annual iron ore prices, the main raw material in the production of steel, are negotiated and set through a benchmarking system in May between major global steelmakers and the three global mining giants, Vale of Brazil and Anglo Australian miners BHP Billiton and Rio Tinto.

In the wake of the plunging demand for steel, China, which is the biggest importer of iron ore, is seeking price cuts of over 40 per cent on the annual contracts while the miners had been unwilling to budge beyond 20 per cent.

China, which has yet to arrive at an agreement on annual prices for iron ore with the miners, has justified a price cut of 40 per cent on two counts. First, it says, iron ore prices have been raised by nearly 400 per cent in the past five years of the global boom that led to a demand for steel. Second, it says, the demand for steel was unlikely to pick up in the current year due to the prevailing global recession and economic slump.

Chinese steel producers and China Iron & Steel Association (CISA) have steadfastly stuck to a 40 per cent cut, but may no longer be able to stick to their rigid stance since Japanese, Korean and now European steel makers have agreed for an average 33 per cent cut.