Iron Ore continues its incredible ascent... the beat goes on; one can only wonder when China (who, like the Fed is also in a box) says no mas. I thought Vale (CVRD) asking for 65% price increases were outrageous [com/2008/02/cvrd-rio-secures-65-increase-in-iron.html">Feb 19: CVRD (RIO) Secures 65% Increase in Iron Ore Pricing], but apparently since these 2 producers have closer locations - they are asking for higher prices (longer distances = more shipping costs to bring in RIO iron ore)
China almost has to (to some degree) continue growing or risk the social unrest of telling scads of newly formed urbanites that they need to go back to the countryside and resume their rural lifestyle. Quite possibly one of the most interesting economic experiments of all time - managing 1.3 Billion people through torrid growth.
- Rio Tinto (RTP) and BHP Billiton (NYSE:BHP) have asked their Chinese steelmaker customers to accept the largest ever increase in iron ore prices or risk the interruption of supplies from Australia.
- Traders and industry officials said the mining companies have demanded price increases for their annual iron ore contracts in excess of the record 71.5 per cent rise of 2005 and were fighting for increases of 85-95 per cent.
- Rio and BHP have warned their Chinese clients some annual contracts will expire next Monday and they would cease supply under the old terms. They have told them the ore would instead be sold into the spot market, where prices are higher.
- The bold step indicates that the heated annual price negotiations, already well beyond their traditional conclusion date, are set to move into a hostile phase.
- Analysts said most of Rio's iron ore contracts would expire on June 30. However, some BHP contracts do not expire until September, leaving the latter time to negotiate and allowing Rio to take the lead in the discussions.
- Rio and BHP are demanding a larger price increase than Brazil's Vale because their proximity to China reduces shipping costs.
- Traders said that freight costs from Australia to China collapsed last week by 37 per cent as at least one of the mining companies stopped booking some vessels for July to ship under the old contracts. That move signalled their intention to move shipments into the spot market if the negotiations failed. (this appears to be the main reason spot pricing of the Baltic Dry Index dropped so suddenly - and it appears to be relative temporary)
- Although China has record high iron ore inventories, the country depended heavily on imports, they said, and it would not be long before it had to cave in and buy into the spot market.
- Morgan Stanley said in a report the ore market was under "unprecedented" pricing developments and . . . "remains very tight and in significant deficit".
Rio Tinto (RTP) CEO on CNBC Friday saying he is bullish on China for... another 10-15 years (granted he is biased)\
In the end, those with hard assets will win. These are the "big 3" in mining.
Long Vale in fund; no personal position
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