Shanghai-based Baosteel Group reached an agreement with Brazilian Companhia
Vale do Rio Doce (CVRD) last night on the contract price of iron ore in 2007.
The price will rise by 9.5 percent to 72.11 U.S. cents per metric ton unit
for the next financial year, said the source with Baosteel.
Baosteel is the world's first steel company to settle an iron ore contract
with the CVRD for the financial year beginning on April 1, 2007.
It is also the first time, during the past four years, that China's steel
companies have directly reached an agreement with the world leading iron ore
provider rather than following the benchmark price settled by their foreign
counterparts and the providers.
Baosteel failed to reach agreement, on behalf of all China's steel mills, on
the iron ore price with the the world's three main iron ore providers -- BHP
Billiton, Rio Tinto and CVRD -- for successively three years.
This posed China's steel companies in a very disadvantageous situation,
because they had to pay no matter how unacceptable the price was, said insiders.
The three iron ore giants raised prices for Chinese steel mills by over 70
percent in the 2005 financial year.
The steel companies were then wrong-footed by CVRD this year and forced to
accept a 19 percent rise.
China has increased its own iron ore output, while India is emerging as a new
source of supply.
Baosteel has more than 30,000 employees and its output exceeded 20 million
tons last year.