Grange secures 69% iron price hike

Perth-based Grange Resources has secured a 69 per cent price increase for its iron ore pellets and is making moves to change from benchmark to index-based pricing.

The company, which holds an iron ore operation in Tasmania, said it had struck a deal with primary customer and shareholders, China's Shagang, for an interim price increase of $US50 a tonne of pellets to last year's benchmark price of $US72/t.

The agreement is effective from April 1. Grange sells between 2.5 million tonnes to 2.6mt of pellets each year.

Grange chief executive Russell Clark said the interim arrangement recognised that the various spot iron ore prices had risen significantly over the past 12 months, along with changes to long-standing pricing mechanisms.

"We are finalising ongoing pricing arrangements with Shagang in order to reflect the significant changes to the iron ore pricing environment," he said.

"The new arrangements will be index-based and incorporate the premium over the standard iron ore fines pricing that pellet products traditionally command and which appears to have returned this year.

"Once we have final agreement, the revenue from pellets sales after 1 April 2010 will be back-dated to reflect the new arrangements.

"We expect that the final average price Grange receives for its pellets in 2010 will be in the range of 80% - 120% over 2009 prices."

Mr Clark added that the new prices could generate between $US150 million to $US200 million each year from the Tasmanian operation, which will be used to fast track the Southdown iron ore project near Albany.

Shares in Grange were up two cents to 65c at 15:01 AEST.