GLOBAL miner Rio Tinto would raise iron ore contract prices for Chinese steel mills by 7.6 percent in the first quarter of 2011, two sources said, a move likely to be followed by other major miners Vale and BHP Billiton.
Rio, the world s second-largest iron ore miner, had informed several leading steel mills in top buyer China about the imminent price change, a trading source said Friday.
An iron ore buyer for a leading Chinese steel producer confirmed the 7.6 percent increase and said China s mills would have no choice but to accept it when the time came.
Rio and fellow Anglo-Australian miner BHP, along with top iron ore exporter Vale of Brazil control about 70 percent of global seaborne trade for iron ore, a key steelmaking ingredient.
From April this year the big three ditched a 40-year-old practice of pricing iron ore contracts annually in favor of a quarterly scheme that uses the average spot price in the preceding quarter with a one-month lag to price contracts.
Iron ore prices have risen around 8 percent to average US$149.9 a ton, including freight, in September to November, the basis for first-quarter pricing, according to the Steel Index, a London-based data publisher and one of three major providers of iron ore reference prices.
TSI estimated that first-quarter iron ore prices could rise at least 4 percent, excluding freight, with Rio expected to increase the price of its 61.4 percent grade iron ore to US$133.71 a ton, from US$128.76 in the fourth quarter.
A hike of 7.6 percent would bring Rio s price to US$138.55 a ton in January-March, according to Reuters calculations.
Rio Tinto declined to comment on the adjustment.
We don t comment on pricing. We don t discuss it except with our customers, said company spokesman Gervase Greene.
Traders have suggested Vale would request a 5 percent increase over the previous quarter s prices.
Contract prices fell by at least 10 percent in the fourth quarter of 2010, dropping for the first time since the shift to the quarterly system, due to a decline in spot market prices in the preceding calculation period.
The China Iron and Steel Association, which groups around 77 Chinese steelmakers, has opposed the new system, but has allowed individual steel firms to negotiate contract prices with the three big miners separately.
An official responsible for buying iron ore at a large Chinese mill said many smaller steel producers were moving away from the quarterly pricing regime in favor of more flexible monthly deals.
Only a few big Chinese steel mills have received the notification of price hikes, and other steel mills will prefer to buy at monthly prices and bid for materials in terms of different grades of ore, he said.
Booming demand from China has helped iron ore prices more than triple this year to peak near US$185 a ton in April and analysts say tighter supplies in the first half of 2011 should sustain prices that have touched 6-1/2-month highs this month.
Imports of iron ore surged 25.5 percent to 57.38 million tons in November, official data from China s customs authority showed.
Strong demand for the raw material has pushed miners like Rio Tinto to boost capacity.
The miner last month said it would spend US$11 billion next year, almost triple this year s budget, to expand iron ore mines in Australia where it had found a further 2 billion tons of deposits.
(SD-Agencies)
