Vale (RIO-N) is cutting the price of the iron pellets it sells this fiscal year to Nu-Iron, a subsidiary of U.S. steel giant Nucor (NUE-N), by 48.3% at US$1.2523 per tonne, Reuters said today.
“This is reportedly in line with the recent agreement between Vale and steelmakers in Japan and South Korea to cut prices for fines by 28.2% and for pellets by 48.3% in Japan’s fiscal year beginning on April 1,” says Patricia Mohr, vice president economics at Scotiabank in Toronto.
On June 10, the Brazilian iron-ore giant said it would cut the price of its benchmark product by 28.2% for Nippon Steel Corp., Posco and other Japanese steelmakers including Sumitomo Metal Industries, Kobe Steel and Nisshin Steel.
In May, Rio Tinto agreed to a 33% price cut for fine ores with steelmakers in Japan and Korea. Bloomberg news agency reported Nippon Steel agreed to pay Rio Tinto US97¢a dry metric ton unit for its benchmark product for the year started April 1. The price cut was the first in seven years, Bloomberg noted.
Mohr points out that there are grade differences however between Vale’s and Rio Tinto’s iron ore and different products receive different prices. The economist forecasts iron ore prices should rise by 5-10% next year, or in the Japanese fiscal year starting April 1 2010.
The big iron ore producers have yet to settle contract prices with Chinese steelmakers such as Baosteel Group.
“Chinese steelmakers have until Tuesday June 30 to decide if they will accept prices recently agreed by Rio Tinto with Japanese, South Korean and Taiwanese steel mills to cut fines by 32.95% and lump by 44.5% or risk going without a contract with Rio Tinto and having to buy on the spot market,” Mohr explains.
Some analysts who cover the iron ore market believe Chinese steelmakers are looking for price cuts this year of between 40% and 50%.
But cuts of that magnitude may be difficult to achieve if Japanese steelmakers already have settled for less.
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