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China reportedly inks iron ore deal

(Agencies)
Updated: 2009-07-08 17:48

China backed down on iron ore prices, signing up to the same 33 percent price cut agreed by Asian rivals but only for a six-month period rather than a full year, the China Business News said on Wednesday, citing informed sources it did not name.

The Shanghai-based newspaper said China had agreed to pay $0.97 per dry metric ton unit for Pilbara blend fines and $1.12 per dmtu for Pilbara Blend lump, but only for April through October. It said negotiations were already underway for the following period.

But the newspaper said its sources could not say which of the big iron ore suppliers had signed the deal.

A 33 percent cut would be in line with what analysts have been expecting as Rio Tinto showed no inclination to relax its "take it or leave it" stance on the initial deal, and an economic recovery lifted spot market prices above new contract levels, leaving China with little leverage.

Several Chinese steel officials said on Wednesday they were unaware of any settlement, though two sources not directly involved in the discussions said they had heard of a possible agreement, but could not confirm it.

Chen Xianwen, head of the market research department at the China Iron and Steel Association industry body, said "All news should be subject to the statement from CISA and Baosteel. I have nothing to say about the news."

Related readings:  Pressure on China to end ore impasse  China ready to give ground in iron ore talks - source  Chinalco confirms deal breakup with Rio Tinto  Chinalco buys $1.5B Rio Tinto shares

If confirmed, the deal would mean China's steel sector had conceded to the same price that Japanese and South Korean rivals accepted from Rio and BHP Billiton, but for only half the time, giving China's mills the chance to argue for cheaper rates if a tentative economic recovery that has revived steel prices falters.

The deal, however, will also expose China to a risk of repricing iron ore potentially at higher costs later this year when demand from elsewhere, especially Europe, is set to recover and tighten market conditions, driving up iron ore prices.

China, the world's biggest steel producer and buyer of more than half of all traded iron ore, had initially sought a bigger price cut of up to 45 percent versus 2008.