UPDATE: China Baosteel Accepts 3Q Iron Ore Term Price-Source

18th Jun 2010 10:31

(Adds calculation parameters for third-quarter iron ore term price offers, background.) By Chuin-Wei Yap Of DOW JONES NEWSWIRES BEIJING (Dow Jones)--Baosteel Group Corp., China's appointed negotiator in iron ore price talks with global mining majors, has accepted a 23% increase in the iron ore price for third-quarter contracts, a person familiar with the matter said Friday. "Baosteel doesn't have much of a choice in the matter," the person, a senior executive of a state-owned steel company, told Dow Jones Newswires. Baosteel, an influential industry leader and the country's second largest steelmaker, is said to have accepted a July-September price offer of $147 a metric ton, excluding freight, from Anglo-Australian miners BHP Billiton Ltd. (BHP) and Rio Tinto Plc (RTP). A Baosteel Group Corp. media official declined comment Friday, saying, "We haven't received any (public) notice on this yet." The two miners have longstanding policies of not commenting on the details of price talks. "Other mills are likely to follow Baosteel, as they also don't have much of a choice," the person familiar with the matter said. While neither BHP nor Rio Tinto have offered clear guidance on how they would price quarterly contracts, Brazilian miner Vale S.A. (VALE) has said quarterly price offers would be based on the average spot price of the three months preceding the current contract, with one month's lag. This means July-September offers would be based on the March 1-May 31 period. A Dow Jones calculation puts the average spot price in the March-May period at around $160/ton, including freight. With the average $11-$12/ton freight cost of the Western Australia-Qingdao route in this duration taken into account, a $147/ton free-on-board offer for the third quarter would be well within the calculation parameters made public so far. However, analysts including Macquarie Commodities have noted that other calculation formulas could be in play as well. After dipping sharply between late April and late May, spot iron ore prices have stabilized at around $151/ton for the last two weeks, including freight. While the global macroeconomic outlook remains cloudy due to continuing European debt worries and China's policies to deflate a nascent property market bubble, analysts generally expect iron ore prices to stabilize or rebound in the third quarter due to relatively tight ore supplies. Baosteel chairman Xu Lejiang said on the sidelines of an industry conference on June 8 that he expected iron ore prices to rise. However, he said iron ore prices will "definitely fall in the fourth quarter, compared with the third quarter, as steel mills are to undergo maintenance or cut output. -By Chuin-Wei Yap, Dow Jones Newswires; 8610 8400 7704; [email protected]. (END) Dow Jones Newswires June 18, 2010 05:31 ET (09:31 GMT)