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Baosteel settles iron ore talks with Australian miner

Baosteel settles iron ore talks with Australian miner

Shanghai: An Australian iron ore producer announced overnight that it has settled prices for contract deliveries for the Japanese fiscal year commencing 1 April 2008, with China's largest steel-maker Baosteel. The price for fines will rise from US84c/dmtu in 2007, to US144.66c/dmtu in 2008 (i.e. a 79.9% increase). The price for lump will rise from US102.64c/dmtu in 2007 to US201.69c/dmtu in 2008 (i.e. a 96.5% increase). The differential between the prices signed with Vale seem to reflect a "proximity premium," in Goldman Sachs' view. The Australians had been holding out in negotiations, maintaining that they should get higher than the 65% increase struck by Vale of Brazil as their mines our nearer to China so cost less to transport.

Goldman Sachs said in a research note it believes that 'the settlement could lead to incremental demand for iron ore from Australia at a time when capacity is very tight, which may initially support freight rates over the next few weeks providing a reprieve from the summer slump at least until ships queuing in Brazil return to the market. Over the medium, we expect ton-mile demand growth for iron ore to normalize. Consequently, shorter voyage distances from Australia than Brazil to the China, Japan and Korea should reduce demand growth for Capes and possibly result in lower freight rates, in our view.'  [24/6/08]

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