From: Reuters
Published March 20, 2008 01:20 AM

Rio says "takes notice" of iron pellet price hike

SYDNEY (Reuters) - Rio Tinto Ltd/Plc <RIO.AX> <RIO.L>, locked in tense iron ore price negotiations with Asian steel mills, said a sharp rise in iron pellet prices achieved by rival Vale <VALE5.SA> <RIO.N> "would not go unnoticed."

Brazil's Vale said on Wednesday it secured an 86.67 percent increase in pellet prices for 2008 from Italian steelmaker Ilva. This compares with a 65-71 percent hike negotiated recently for its non-pelletized iron ore.

"This result indicates just how strong the market is at the moment and not just for pellet prices but for iron ore products in general," Rio iron ore division spokesman Gervase Greene said.

"It is a good indicator which will not go unnoticed."


Iron ore pellets are used for steelmaking in many countries where more common lump iron ore is not readily available for purchase.

"We believe most investors expected pellet price increases to be equal to or less than the 65-71 percent increase on iron ore fines announced in February, and this news could come as a surprise to the market," Morgan Stanley said in a client note.

Rio has been pushing its customers to pay a premium for Australian iron ore to compensate for a price differential on shipping costs versus material from Vale's Brazilian mines amid high demand for ore.

It costs more than $60 a tonne to ship ore to China from Brazil versus about $20 a tonne from Australia.

The shipping premium has so far faced resistance from mills, disrupting the tradition of all miners going along with the first settlement by a major miner, in this case Vale.

Beijing has waded in on the talks with Australian miners by blocking expensive spot material at ports as it tries to limit price hikes for its steel industry.

Greene would not comment on the row. Rio has plans to sell up to 15 million tonnes of ore in the spot market this year. Rio produces about 17 million tonnes of pellets from its mines in Canada, though it has no pellet-making facilities in Australia.

Vale said Ilva had agreed to pay $2.202 per unit for pellets shipped from Vale's port in Tubarao.

Like iron ore prices, pellet prices are set annually in negotiations between the mining companies and steel makers.

(Reporting by James Regan)

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