Nippon Steel, POSCO to Pay 90% More for Vale’s Iron Ore Provisionally

Nippon Steel and POSCO agreed with Vale to raise provisional iron ore shipment price by around 90% or around US$ 50 per tonne for April-June compared with fiscal 2009 annual price. The price is to adjust wide gap between annual contract price and spot market price while they continue negotiation for official price. The steel makers didn’t accept new quarterly pricing system officially but Nippon Steel sees such shorter pricing would be inevitable.

The provisional price is FOB US$ 100-110 per tonne depending on the ore grade for April-June. The price would be around US$ 105 for Itabira fine ore with 65% of Fe, which is US$ 55 per tonne for fiscal 2009. The provisional price is replaced with official price when they keep talking for official price. The price could be lower but Nippon Steel agreed to increase the price from fiscal 2009.

They keep talking the price including pricing term. However, the possibility is narrower for annual fixed price when Vale rejects annual pricing as before. Vale seeks quarterly pricing and the term would be shorter than yearly base. However, they have to make new price mechanism to reflect spot delivered price change for Chinese buyers to their FOB contract price.

Other Japanese major steel makers are expected to agree with Vale for similar provisional price. However, they would take more time to fix iron ore cost when they continue the negotiation with major 3 iron ore suppliers including Rio Tinto and BHP Billiton.