Australian miner Mount Gibson has followed Rio Tinto in setting the annual benchmark price for iron ore for the year ahead by reducing the annual contract price for its Chinese customers in line with the agreement reached between Rio Tinto and Japan's Nippon Steel and subsequently agreed by POSCO of South Korea this week. (See: Chinese steelmakers upset with Nippon Steel ore price-cut deal with Rio)
Perth-based Mount Gibson said in a statement, ''Following the recent announcement by Rio Tinto Limited that Hamersley Iron had reached agreement with Japan's Nippon Steel Corporation on the price for Hamersley lump and fine ores for the contract year commencing 1 April 2009.''
Mount Gibson, which has existing contracts prices based on the Hamersley settlement, added that it has notified existing long term iron ore contract customers that lump and fine ore prices will be $112 cents per dry metric tonne unit and $97 cents per dry metric tonne unit respectively, effective 1 April 2009.
This announcement, if agreed by its Chinese customers like Shougang, China's state-run and fourth largest steel maker and APAC Resources Ltd, one of China's largest iron ore trader, would then add another nail to the coffin to the Chinese steel manufacturers in their current ongoing negotiations with the world's largest iron ore miners on the annual contract price for the mineral. (See: Global iron ore miners locked in pricing battle with China)
Global iron ore mining giants Vale of Brazil, BHP Billiton and Rio Tinto and world's largest steel producer, China, sit down and negotiate the annual contract price for iron ore.
But this year, the negotiations, which began in April, have failed to reach any conclusive accord since China is demanding that the miners reduce the price by 40 per cent in line with the plunging global demand for steel while the miners are willing to a 30 per cent cut.
China, the biggest importer of iron ore, 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.
This week, the world's second largest iron ore miner, Rio Tinto's subsidiary Hamersley Iron, pulled the rug from under the Chinese steel manufacturers, when it signed a 33-per cent price cut in the annual contract price for ore with Japan's largest steel maker Nippon Steel, which was subsequently also agreed by POSCO of South Korea.
APAC and Shougang Concord International, a subsidiary of the Shougang Group, had rescued Mount Gibson in December when its customers defaulted on sales agreements, leaving it cash-strapped by taking little more than 40 per cent stake in Mount Gibson for A$162.5.