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China Bypasses Majors in Iron Ore Deal
August 17, 2009

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Beijing. China announced on Monday an iron ore supply contract with a smaller Australian miner in an apparent effort to prod global producers to accept lower prices in deadlocked contract talks.

Australia’s Fortescue Metals Group will sell China iron ore for 94 US cents per dry metric ton, the state-sanctioned China Iron and Steel Association (CISA) said. That is below the 97 cents agreed to with Japanese and South Korean mills for this year’s supplies — the same price major suppliers want Chinese mills to accept.

The Chinese industry group is deadlocked in price talks with the three major global suppliers of iron ore — Anglo-Australian miners Rio Tinto and BHP Billiton and Brazil’s Vale.

Beijing is pressing for deep cuts after two years of price hikes that more than doubled the cost of iron ore. A cabinet minister last week said China wants more control over global prices due to its status as the world’s largest consumer of iron ore.

“The deal breaks the market impasse that had enveloped the Chinese iron ore industry and created uncertainty and risk,” Fortescue said in a statement issued in Australia.

Fortescue said the deal included a pledge by the CISA to give the company priority in negotiating next year’s prices if annual talks are held. That could erode the influence of Rio, BHP and Vale in setting prices.

Employees who answered the phone at CISA’s Beijing headquarters refused to give more details or transfer a reporter’s call to the group’s spokesman.

Associated Press