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China in ore negotiations with Vale and Fortescue

Shanghai: The China Iron and Steel Association (CISA), the country's lead iron ore price negotiator, said on Thursday that it recently "exchanged opinions on iron ore cooperation" with Brazil's Vale and Australia's Fortescue Metals Group, writes Reuters.

The public acknowledgement of the meetings comes as time runs out for CISA to settle annual iron ore prices with Australian supplier Rio Tinto, a deal which would require an embarrassing Chinese climb-down or an admission of defeat by Rio.

Rio, which has said it wants a deal by June 30, first threw down the gauntlet to China by convincing Japanese and South Korean steelmakers to sign up for smaller price cuts than the Chinese were demanding.

CISA wants a price cut of at least 40% from Rio and its compatriot BHP Billiton, more than the 33% accepted by a swathe of other Asian steel mills.

The iron ore pricing system has traditionally seen Vale, Rio and BHP, which between them control about 70% of the global seaborne iron ore market, agree prices in Asia that then become the world benchmark for the year.

But several factors have suddenly thrown open the door to a change in the system, including the emergence of Fortescue as a smaller rival to BHP and Rio, the collapse in global demand and shipping rates, splits between the pricing systems favoured by the big three suppliers, and the possibility that abundant iron ore stocks could prompt China to rely on the spot market.

CISA officials were not immediately available to comment on the discussions with Vale and Fortescue.

CISA's General Secretary Shan Shanghua met Jose Carlos Martins, Vale's executive director for ferrous minerals on Tuesday, and Fortescue Chief Executive Andrew Forrest on Thursday, CISA said in two brief statements on its website.

The Chinese steel industry toughened its position last week by threatening to walk away from the iron ore price negotiations and said it was ready to cut steel output.

Vale, the world's largest producer of iron ore, said last week it was in talks with the Chinese to set prices after concluding deals with other Asian steel mills.

"Vale also hopes to reach an agreement with China, one of the main markets of Vale," it said in a statement. A press official said this meant the company had begun talks with China.

Meanwhile, Fortescue has said its charter is to become China's most important iron ore supplier and is aiming to be one of the first foreign companies to list on the Shanghai Stock Exchange.  [19/06/09]

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