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Rio Tinto, the mining giant, has agreed to cut the price of the iron ore it sells to Nippon Steel Corp by 33% compared with last year.
The deal is important because — with Nippon being the world's second-largest steel producer — it is likely to set the benchmark across the industry and could force Chinese steelmakers to give up their attempts to get iron ore prices cut by as much as 50% which would have returned them to 2007 levels.
Sam Walsh, head of Rio Tinto's iron ore operations, said: “We believe this settlement is a realistic outcome for both parties, one which reflects the global market for iron ore and the current challenging market conditions facing our customers.”
Nippon Steel has agreed to pay Rio 97 cents a dry metric ton down from last year's record price of 144.66 cents.
Analysts had said prices for iron ore could drop by as much as 40% this year as demand from carmakers and construction companies dried up. Chinese steelmakers have been hit by a dramatic decline in domestic iron ore production which has forced them to import record volumes from abroad.
Mark Pevan, commodity analyst at ANZ bank, said: “You could say this was a done deal. When Rio strikes with Nippon everyone follows. But I've got a feeling that maybe the Chinese have something else in store.”
