Contract prices cross USD 100/t to reach all-time highs; yearly contracts give way to quarterly contracts
Yesterday, Vale settled with five Japanese steel mills (Nippon Steel, JFE Steel, Sumitomo Metals, Kobe Steel and Nisshin Steel) with a ~90% increase in contract prices implying prices of USD 100 to 110/t depending upon grade. This is only for the Apr-Jun-10 quarterly and is broadly in line with the recent newsflow.
This surpasses the previous high of USD 90/t agreed in 2008. Indian spot iron ore prices are currently at USD 125/t FOB (63% grade).
Also, as expected, the traditional system of annual pricing has given way to quarterly pricing. BHP had already advocated this system and moved over 50% of its cargos to spot basis.
Australian iron ore producers yet to settle; may get higher price due to favorable freight differential BHP and Rio are yet to come out with announcements. We believe they are likely to get a higher price in absolute terms due to favourable freight differential. Australia-China freight is USD 15/t lower than Brazil-China freight. In the past, Australian producers have pushed for sharing of the gains that accrue to Chinese steel producers due to this. This could result in USD 5 to 7/t higher price for Australian producers, though the percentage increase could be same due to higher initial base. Sesa Goa follows Australian pricing.