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Vale says iron ore prices set by market, not miners
Published 8:52 PM, 1 Jun 2010
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Reuters
SHANGHAI - Brazilian mining giant Vale has already set contract iron ore prices for the third quarter of this year and offered them to its customers, the company's ferrous metals director, Jose Carlos Martins, said.
Speaking at a media conference in Shanghai, Mr Martins declined to go into detail about the prices being offered over the July-September period, but said they represented an average of prices from March to May.
However, he expressed concern that Chinese steel mills might default on their iron ore contracts if the spot market prices fall below quarterly prices.
"It's a possibility – but I hope they are not going to do it, because we have contracts, we have a long-term commitment and long-term commitment has to be for both sides," he told reporters on the sidelines of a news conference in Shanghai.
Interfax reported earlier month that Vale was asking for a 23 per cent price increase in the third quarter, bringing prices to $US160 ($A192.82) per tonne, higher than the current spot market price of around $US150.
Chinese steel mills were accused of defaulting on their annual contracts in the second half of 2008, when spot market prices fell below benchmark contract prices for the first time as a result of the global financial crisis.
Their failure to stick to the contracts has been blamed for the collapse of the decades-old benchmark system, in which steel producers negotiate a fixed annual iron ore price with suppliers.
Dynamic market
Vale has already replaced the annual benchmark with an index-based mechanism in which prices are changed every three months, prompting bitter complaints from Chinese steel mills about the unhealthy control over the industry exerted by Vale and its Australian counterparts, Rio Tinto and BHP Billiton , which between them control about three-quarters of the global seaborne iron ore market.
But Vale's chief executive, Roger Agnelli, speaking at the same news conference, insisted that supply and demand was ultimately responsible for the price surge.
"Vale is not fixing prices – who is fixing the prices is the market," Mr Agnelli said.
The old benchmark method in which prices were set annually through negotiations had been undermined by changes in the market, Mr Agnelli said. "The market is so dynamic that no one was able to continue with the benchmark mechanism."
Mr Martins said customers were free to choose the index they preferred to use, so long as they accepted the more flexible quarterly pricing system.
He said in the long term, iron ore prices should be set by market forces of supply and demand, as with other commodities.
"Nobody disputes about prices of soybeans, aluminium and copper – if you want to buy, you buy. In the long term, iron ore prices will be fixed the same way."
Ore shipments to China are expected to stand at around 140 million tonnes this year, the same as 2009, Mr Martins added, and the company was now working on restoring output to its full capacity of 300 million tonnes.
"As a matter of fact, during this year a lot of other markets are growing faster (than China)," he said, adding that buyers from other markets were vying with Chinese customers for supply.
Mr Agnelli said the company was confident that demand would continue to remain strong, and that Chinese government measures to curb overheating were not a serious concern.
Chinese imports of iron ore surged dramatically last year even as the global economic crisis eviscerated steel markets in Europe, Japan and the United States, rising 41.57 per cent to 627.78 million tonnes.
Imports from Brazil alone have surged 22 per cent over the first four months of 2010, reaching 42.9 million tonnes – a fifth of China's total.
"In Vale we pray for China every day," Mr Agnelli said.
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