WSJ reported that Mount Gibson Iron Limited has set its contract iron ore prices in line with cuts agreed to last week between Rio Tinto Limited and Nippon Steel Corporation.
WSJ report cited Mr Luke Tonkin MD of Mount Gibson as saying that Chinese customers Shougang Corporation and APAC Resources Limited have acknowledged the price has been settled.
Mr Tonkin said that all the Perth based miner's long term iron ore contracts are set in line with the price Rio Tinto sets for its Hamersley product. He said that "Our customers are obliged under the contract to pay us the Hamersley price. The customer does not have the ability to come back and say they do not want to pay that price. That is the price."
Mr Tonkin said that he expected larger steel mills in China would be keen to settle at the Rio Nippon price to give them certainty of supply for the large quantities of high quality ore they require. He said that "My view is that those large steel mills that require quality feed and large volume will be looking very seriously at falling into line."
The Mount Gibson announcement could mark the first acceptance of the Rio-Nippon price as a new benchmark by a Chinese steelmaker, as Mount Gibson's customers include China's sixth biggest steelmaker, Shougang.
Mount Gibson's other customers are CITIC Australia Trading Limited, Marubeni Corporation of Japan and private European commodity trader Stemcor Holdings Limited.
Rio Tinto announced that its subsidiary Hamersley Iron has settled its iron ore contract for 2009 with South Korean steelmaker POSCO and Taiwanese steelmakers CSC and Dragon on the same terms agreed during last week with all its Japanese customers.
The prices agreed for the 2009 Contract year for Pilbara Blend Fines and Yandicoogina is 97.00c/dmtu, and Pilbara Blend Lump is 112.00c/dmtu.
Mr Sam Walsh CEO of Rio Tinto Iron Ore said that "Each year the pricing negotiations are tough and this year is no exception, although the situation is becoming clearer as more customers settle to the same terms.”
He added that “We continue to negotiate with our remaining customers, the bulk of whom are in China. We believe the settlements achieved to date demonstrate that customers appreciate the certainty of price and volume that the benchmark system ensures."
The release said that “For guidance, approximately half of the iron ore that Rio Tinto has produced this calendar year has been sold on a spot market basis.”