China secures Fortescue iron ore deal

Iron ore talks between Chinese steel makers and international suppliers have finally resulted in a breakthrough.The China Iron & Steel Association said on Monday that Chinese steel mills have secured a long-sought price cut from Australia's Fortescue Metals Group.

The China Iron & Steel Association, or CISA, says its new price cut agreement will last through the second half of this year. Chinese mills will pay 94 US cents per dry-metric-ton-unit for iron ore fines. That equals 55.5 US dollars per metric ton for Fortescue's products. The agreed price represents a 35 percent reduction in 2008-09 iron ore fines contracts, and a 50 percent discount in the price of iron ore lumps.

Shan Shanghua, secretary-general, China Iron & Steel Association, said, "The contract we signed is protected by law. Fortescue has promised to supply iron ore to Chinese firms at the unified price. This is a big step closer to China's goal of establishing a new iron ore pricing system. That's why we sealed the deal."

In February, China's Hunan Valin Iron & Steel Company invested nearly 900 million US dollars in Fortescue, raising its' stake to 17.5 percent. The Chinese group is Fortescue's second-largest shareholder.

China imported 485 million tons of iron ore last year. Fortescue's annual production capacity is 50 million tons. The number is expected to double in 2010. The company will then be able to supply 20 percent of the nation's iron ore imports.

Meanwhile, the association says China will ask the world's biggest producers, Vale SA, BHP Billiton and Rio Tinto, for a similar reduction. China had sought a discount of 45 percent this year, more than the 33 percent offered by Rio Tinto to Asian customers. It argued the country should enjoy a bigger cut as the world's largest buyer.