China shuns Rio Tinto, signs long-term iron ore price with Australia’s Fortescue

China today sidelined the big global iron ore miners by fixing its long-term iron ore price with Australia's third-largest iron ore miner, Fortesue Metals Group, with a guarantee that Fortescue would be given priority during iron ore price negotiations for 2010.

China's lead negotiator in fixing this year's long-term contract price for iron ore, China Iron and Steel Association (CISA), and Baosteel Group Corporation, the country's largest steel maker, today signed the iron ore supply agreement for 2009 with Fortescue Metals with a 35.02-per cent price cut for iron ore fines and a 50.42 per cent cut for iron ore lumps.

''The agreed price is $0.94 for dry metric tonne unit on an FOB basis and is around 3 per cent lower than the price agreed by other Australian miners with non Chinese Steel mills. This price equates to approximately $55.50 per dry tonne for Fortescue grade iron ore. Fortescue has also agreed a lump price of $1.00/dmtu for high grade lump which is equivalent to approximately $61 per dry tonne FOB,'' Fortescue said in a statement.

Spot prices for iron ore crossed the $100 a tonne last week from April's low of $58 a tonne, which is approximately 59 per cent above the benchmark price agreed by China with Fortescue.

Fortescue chief executive officer Andrew Forrest said, ''This groundbreaking agreement cements the strength of the bilateral relationship between Australia and China in which mutual issues can be resolved and future opportunities identified. It also creates a realistic and agreed iron ore price that delivers value for all parties and provides strong support for Fortescue's continued growth.''

Liu Zhenjiang, CISA's vice chairman, said at a news conference in Beijing today that the association would now negotiate with other miners on the "Chinese model" for iron ore long-term price talks.