CVRD wins 19% iron ore price hike
SMH, May 16, 2006 - 11:04AM
Australia's iron ore miners could be set to win better than expected price hikes in contract negotiations after Brazilian miner Companhia Vale do Rio Doce (CVRD) reached agreement with a major customer.
CVRD, which is the world's biggest iron ore producer, has announced it has agreed to a 19 per cent increase in contract prices for iron ore fines with German steelmaker ThyssenKrupp AG.
The miner said it had also agreed to a three per cent drop in prices for blast furnace pellets.
The announcement could signal that this year's protracted round of negotiations between producers and steel makers could finally be drawing to a close.
In past years, a deal by CVRD has set the benchmark for prices negotiated by Australia's two big iron ore miners, BHP Billiton and Rio Tinto.
ABN Amro mining analyst Rob Clifford said the CVRD deal would probably set the scene for the rest of the ongoing negotiations.
"When they settle the others typically come in around the same mark," he said.
"So you can normally, in normal years, say BHP and Rio will get a similar outcome in Asia."
Iron ore miners won a massive 71.5 per cent hike in contract prices last year and there had been strong resistance from the Chinese steel industry to any further rise this year.
But with demand for iron ore still strong, most analysts were expecting the miner's would win price hikes of somewhere between 10 per cent and 20 per cent.
Mr Clifford said that if BHP Billiton and Rio Tinto followed with a 19 per cent increase in prices this would be at the top end of expectations and would add a few per cent to earnings forecasts.
But it was still not entirely clear whether the CVRD price included freight or not and it was too early to give upgraded profit forecasts, he said.
"There are still some uncertainties," he said.
"We still have to wait before we can lock in the numbers, but we can be pretty confident that it should be around the same sort of level for BHP and Rio."
News of the CVRD deal did little to stop the sell off of the big miners on Tuesday and at 1037 AEST BHP Billiton had slipped 69 cents to $29.96 and Rio Tinto was down $1.91 to $82.29.
A sharp drop in commodity prices has sparked selling in most mining stocks, but analysts say the correction is a healthy one and the supply and demand fundamentals underpinning the commodities boom remain in place.