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Japanese Market Settles At 71.50 Percent Iron Ore Price-Up With Rio Doce
= Nippon Steel Corp, Rio Doce play first setters for 2005 prices
While five Japanese blast furnace steel companies including Nippon Steel Corp (NSC) have been advancing negotiations on 2005 iron ore prices individually, NSC came to settle new prices at a 71.50 percent price increase with Rio Doce Asia February 22. Both Itabira fines and Carajas fines each was agreed at US 55.34 cents / dmtu, fob and US 56.18 cents/dmtu, fob. In terms of price per ton (at 66.50% Fe), they represented US$36.80/dmt, fob (up $15.34 from the level in 2003), and US$37.36/dmt, fob (up $15.57), respectively. Negotiations with Australian BHP Billion and Hamersley Iron are to take place February 22 - 23 over pending fines and lump prices, aimed at a subsequent settlement. For readers' information, NSC has changed contractual price unit from previously used "dltu (dry long ton unit)" to "dmtu" (dry metric ton unit).

[Development of price talks]
Iron ore prices, too, have finally seen a settlement but with an unprecedented price increase. Since commencement of talks in last December, the negotiations have developed with distances widely open in the argument between the suppliers who seemingly claimed "A two-digit increase in terms of US dollar" and the Japanese side which persisted "Price-up should be kept within a reasonable range."

The suppliers, referring to the increasingly tightened supply and demand environment around global iron ore markets, strongly insisted on the need to pour a huge amount of capital expenditure (facility investment) in the development of ore mines and infrastructure in Australia and Brazil. The expenditure by the four major suppliers to aggregate a huge US$4 billion should be definitely conducive to meeting the demand from mainly China, according to them.

Negotiations on hard coking coal paralleled, settling at $125 per ton, a massive 2.2-fold increase from the prior year, thereby principal ferrous raw materials have shifted on to unprecedented high levels. The outcome of the coal talks is regarded to have given a none too small impact on iron ore facet.

[Negotiations in Japanese market continue to the evening of 22nd]
Japanese market remains pending settlement on Australian fines and lump with BHP Billiton and Hamersley Iron. Continued talks are scheduled for the evening of 22nd with BHP Billiton, and for 23rd with Hamersley Iron.

[A huge 250 billion yen burden implied for Japan as a whole]
As mentioned above, NSC and Rio Doce Asia became the first price setters with agreement finally reached on 21st. It is for the first time in six years that fines ore prices have been settled in the Japanese market, as too the first event after 1984 that agreement was reached with Rio Doce. It seems Japanese side had to largely meet halfway in reaching agreement even at a lower level than what Rio Doce had sought for (a 90 percent increase; see last paragraph) before the argument of the counterpart of the extremely tight demand-supply situation prevailing the present global iron ore market.

The price-up agreed this time implies a cost increment of roughly 250 billion yen in terms of imported iron ore for the entire Japanese steel industry. Together with the 450 billion yen cost increase derived from the coal price agreed in December last, a total of 700 billion yen cost increase will hit the industry, potentially affecting steel products prices hereafter. Japanese steel mills have announced steel price increase between 10,000 and 15,000 yen per ton for delivery in April 2005 onward with the increased raw material prices in the background.

Multiple rumors over the development of 2005 iron ore prices have spread through world mass media. In the eve of price talks resumed on January 16, a misleading news flew in saying the South Korea had reached a price increase of 65%. A sort of fair game by the hands of mass media. In the midst of price talks in January there ran a surprising news across the world to the effect that CVRD board of directors sought a 90 percent price increase.
last modified : Mon 28 Feb, 2005 [10:07]
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