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    Japanese agree to 65% iron ore price gain
    Email Print Normal font Large font AdvertisementFebruary 18, 2008 - 10:41AM

    Japan's Nippon Steel has agreed to a 65% rise in the price it will pay for iron ore under term contracts, effective April 1, industry sources and a Chinese steel industry website said on Sunday.

    The price rises are expected to be a boon for BHP Billiton and its takeover target Rio Tinto.

    Term iron ore prices had been widely expected to rise by 50% or more, after spot prices soared to record highs in 2007 and Chinese steel mills' demand showed no signs of abating.

    The rise could squeeze margins for the steel industry, which is already facing rising costs for coke, coal, and shipping.

    "An international steel mill has concluded 2008 iron ore negotiations. The 2008 iron ore price will rise by 65%," steel industry website Umetal said late on Sunday.

    Industry sources said Nippon Steel had concluded the deal. That company could not be reached on Sunday evening.

    ''We don't comment on speculation,'' Ian Head, spokesman for London-based Rio told Bloomberg today.

    ''We just don't comment on iron ore negotiations,'' Samantha Evans, spokeswoman for BHP told Bloomberg.

    Traditionally, all steel mills accept whatever price is first settled by any steel mill and one of the three top miners, Brazil's Vale or Rio Tinto and BHP Billiton.

    Li Xinchuang, vice president of the China Metallurgical Industry Planning and Research Institute, confirmed a price had been set but did not confirm which companies nor what price level.

    A deal would be announced this week, Chen Xianwen, deputy general director of the China Iron and Steel Association, said on Sunday, while also declining to confirm the price or parties to the deal.

    When asked if Chinese mills would accept a price settled by their Japanese counterparts, Chen said they would. "That's how the system works."

    Steel mills had argued that an increasingly gloomy global economic picture justified limiting the additional amount they would pay for iron ore.

    But miners pointed to 16% rise in Chinese crude steel production last year and ongoing production and transport disruptions as supporting iron ore prices for the foreseeable future.

    "We had expected 50%, but that was a conservative estimate. A 65% rise is very reasonable," said analyst Henry Liu of Macquarie Research.

    Miners have chafed as spot prices for inferior grades of iron ore far exceeded the Australian and Brazilian ore sold under term contracts.

    Rio Tinto, which is fighting off a takeover proposal by BHP, has said it would like to move to an index pricing system that would better reflect spot prices.

    Chinese mills last year signed the deal for the first time, arguing that as the world's largest consumer of iron ore, China should have the first say in setting prices. The nation's top steel maker, Baosteel, leads negotiations for the Chinese industry.

    Reuters
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