17/08/2009 - 08:52

FMG secures pricing deal with China

17/08/2009 - 08:52


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Iron ore miner Fortescue Metals Group has agreed to a price for all the iron ore it sells to Chinese steel mills for the six months to the end of December.

Iron ore miner Fortescue Metals Group has agreed to a price for all the iron ore it sells to Chinese steel mills for the six months to the end of December.

Fortescue said an agreement with Baosteel Group Corporation and China Iron and Steel Association (CISA) commits them to acquire about 20 million wet metric tonnes from Fortescue between 1 July and 31 December 2009.

"The agreed price is $US0.94 per dry metric tonne unit (dmtu) for Fortescue's Rocket Fines (on an FOB basis) and is about three per cent under the price agreed by other Australian producers with non Chinese Steel mills," Fortescue said in a statement.

"This price equates to approximately $US55.50 per dry tonne for Fortescue grade iron ore.

"Fortescue has also agreed a lump price of $US1.00/dmtu for high grade lump which is equivalent to approximately $US61 per dry tonne FOB."

Fortescue said a conditional subsequent to the agreement was the completion of finance by 30 September 2009, by Chinese financiers on terms acceptable to Fortescue.

This is estimated by Fortescue to be an amount of $US5.5 billion to $US6 billion.

Under the Agreement, CISA has guaranteed that a priority will be given to FMG to negotiate iron ore prices for 2010 if the annual pricing negotiation is conducted.

Fortescue shares went into a trading halt last week pending the announcement, which chief executive Andrew Forrest says breaks the impasse which has enveloped the Chinese iron ore industry in uncertainty and added risk for the past 12 months.

They rose after resuming trading, and were up 15 cents or 3.37 per cent at $4.60 at 1045 AEST.

"The ongoing market speculation has promoted unprecedented iron ore and steel price volatility, which in turn has created extreme production uncertainties for Chinese steel mills and for suppliers setting individual contracts with those mills," Mr Forrest said.

"This agreement eliminates that price uncertainty, sets a solid platform for Fortescue to deliver increased product into China and affirms our close working relationship with CISA and all Chinese steel mills."

Fortescue notes that while the price of steel in China has nearly doubled over the past three months, it has fallen by 20 per cent over the past 10 days alone, reflecting the continued volatility in the industry.

China Iron & Steel Association confirmed it has agreed to an iron ore supply deal with Fortescue amid deadlocked price talks with global suppliers.

The deal comes after the Chinese government said last week it wants more control over global iron ore prices.

The association said the agreement to supply iron ore at a price equal to $US55.50 per tonne would be slightly below the price that global iron ore suppliers agreed to with Japanese and Korean mills.

China has rejected that price as excessive and is pushing the global suppliers for deeper cuts.


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