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Benxi, Liao Ning province found a large ore reserve, over 3bln tons. According to experts, the type of this deposite is a mixture of magnetite and hematite and iron ore quality is between 25% and 62%. The current 3bln tons is just an estimated number, while its real reserve is likely to be doubled.

Insiders of the industry believe that this iron ore find, plus CISA regulating imported iron ore speculation strongly, which is likely to exert an important role in iron ore negotiation and impose pressure on the three mining enterprises.

Analysts pointed out that no worry to buy ore is a view repeatedly emphasized by CISA in this year’s iron ore negotiation, because iron ore supply is expected to present oversupply of 200mln-300mln tons, plus this new ore reserve, there is no doubt that the favorable supplying position of the three mining enterprises will sharpen. In turn, China side has more confidence in negotiation and adheres to its requirement of 40% reduction.

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June 30, the deadline for iron ore long-term contract, while the negotiation between China side and the three mining giants has no outcome. Based on China side strong attitude towards more reduction, Rio Tinto, the global second largest iron ore producer, said on June 30 that most supplying contract will be transferred to spot pricing from July 1.

The annual iron ore long-term contract pricing mechanism as conventions has been followed by buyers and sellers for 40 years around. This pricing method has firstly presented crack last year, but this year it is going to disappear. Rio Tinto, as the representative of buyers, firstly has not signed contract with most customers before June 30 for 20 years.

Gervase Greene, the spokesman of Rio Tinto revealed that it has been supporting long-term contract pricing mechanism for long time, but if customers choose to buy iron ore on spot market, it will conform to the requirement of customers.

Jpmorgan published forecast last month that to give up annual long-term contract pricing mechanism will add the fluctuation of benefit for Rio Tinto. However, Rio Tinto disclosed on June 1 that its half iron ore was sold on spot market.

China surpassed Japan in 2003, became the largest iron ore consumer. Prior to this, every year’s iron ore long-term contract price is set by Japan and European steel enterprises. In the fiscal year of 2007, China as the leading buyer firstly conclude a 9.5% cut with the Vale.

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In response to the recent news prevailed in the market that iron ore negotiation outcome has been determined, the principal of China Iron & Steel Association (CISA) made it clear that the final result has not been sure. The principal of Hebei Iron & Steel said that the annual iron ore price negotiation between China side and iron ore suppliers will have a result soon, but he did not reveal the detailed time.

People close to the negotiation disclosed that China side may accept Nippon’s initial price, that is, 33% reduction, but the pricing model needs to be changed and may carry out half-yearly pricing, while, the principal of Heber Iron & Steel does not admit this pricing model.

Roger Agneli, CEO of Vale, one of the three mines said as for the negotiation, which has not concluded with China side, he pointed out that the benchmark has been determined. Customers choose what they want and China also selects what they expect. He also said that Vale did not insist on operation on spot market, but it is willing to deliver goods with the ways what customers want.

According to the reporters, currently three mines will decrease the investment in domestic spot market in the following two months. Mines said they need guarantee the supply of long-term contract consumers in the future, because since Q4 last year, the domestic steel mills had stopped the purchase with the long-term contract but turned into spot market. The present spot price is basically in line with the long-term contract ore.
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Overseas media reported on July 15 that China steel enterprises had quietly accepted the Rio-BHP’s agreement on iron ore 33% price reduction.

In response to this scandal, the related officials of China Iron & Steel Association (CISA) said that he had not heard of it and pointed out this version was not true. AmandaBuckley, the media departments in Australian headquarter of Rio Tinto, said in an interview on July 15 that he did not comment on iron ore negotiation.

According to foreign media reports, most steel enterprises had accepted half-yearly contracts and most are one-year contracts, as well as CISA would not public the reached agreement with Australian mines

On account of the above media report, the insiders of public relations department of Baosteel said in an interview that CISA had not released the outcome of negotiation and Baosteel as well as enterprises participating talks also had not issued the related statement, therefore, it is worth doubting that China’ s steel enterprises have accepted 33% price cut. Bond department insider of Baosteel also said he has not received the notice related to the negotiation result.

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After continuous drops for half-month, Baltic Dry Freight Index (BDI) stopped sinking to rebound. On July 15, BDI sharply increased 227 points, ended with 3,324 points. Several insiders of shipping trade pointed out that it is expected that China’ s iron ore talks is going to close and China will significantly import iron ore to propel BDI rise.

Since this year, driven by the freight of Capesize mainly shipping iron ore, BDI experienced a round of quick rebounding and set H2 new record high with 4,291 points on June 3, rebounded nearly 500% compared with the lowest level in Dec. last year.

The insiders of China Shipping believed that the recent rebounding of BDI may be affected by the closing iron ore negotiation. The market participants thought that after iron ore price talks end, China will continue largely import iron ore and the shipping demand is still stable. In addition, scandals that even if at the level of 3,000 points around, most ship-owners still seal up for keeping freight to prop BDI tendency.

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A few days ago, Shougang did not conclude the Susan Palmer Deposit Project Agreement with Australasian in Pilbara area, therefore, it lost the right in providing assets for this project by its own. After ending the agreement, Australasian will continue negotiating with Shougang without agreement, at the same time, it will also negotiate with other investors.

The well-informed person revealed that Shougang insists on the shareholding of this project, which did not be accepted, further resulted in the breakage of the final talks.

In March 2007, Shougang invested AUD56mln in iron ore project’s research by way of buying 12.8% shares. At that time, the both sides reached the common ground that if Shougang chooses to participating this project’ s development, it will take on the whole exploitation cost of U.S.$2.7bln and also promise to purchase all iron ore produced in this project. Australasian owns the exploitation right of 1bln tons iron ore in the southern Balmoral of Pilbara.

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On July 20, WISCO and Australian CXM (CentrexMetals) signed cooperative development agreement on iron ore project in South Australia. It is learned that after approved by the both sides’ government, the agreement will be formally carried out.

This cooperation of both paties involved stock acquisition, mining right purchase, exploration cooperation, JV company’s establishment, etc. As for the stock acquisition, CXM listed company will be directional 15% of shares to WISCO. After the acquisition, WISCO will become CXM second largest shareholder, owing a position of board member in CXM. Additionally, according to the determined unit price, that is, AUD 0.18 per ton, WISCO totally paid AUD 216mln and gained 60% of interests. The both side will also implement the exploration, development and construction in the special mine area of CXM through joint investment.

Australian CXM is a listed company in Australia, owing many high-quality mines in South Australia. The both side will co-develop the iron ore project in Middle and South of Eyre Peninsula in South Australia. According to the introduction, the cooperative minng area was made up of 5 lease parts, covering an area of 600 square kilometers. It is predicted that the total resource can reach over 2bln tons, with the quality of 30% around and by magnetic separation, 65% of iron concentrate can be got.


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On July 22, BHP Billiton, the world largest mining company released the financial report of 2009, thereinto, the output in the last quarter (April-June this year) was only 27.04mln tons, dropped 10% y-o-y and 4% m-o-m. This number greatly differed with the figure of Rio Tinto’s, an 8% increase.

BHP Billiton said that the fiscal year of 2009 is very challenging for it, because the global demands apparently shrinked and inventories also changed. Therefore, the company adjusted a series of products’s production. BHP Billiton’s iron ore output reached 114.4mln tons, up 2% y-o-y, but it is far below the expected production, 130mln tons. Especially in April-June, the output presented obvious drops.

BHP Billiton pointed out that this phenomenon resulted from a series of accidents happened in Pilbara area.

However, not long ago, Rio Tinto released that its iron ore production was 45.2mln tons in Q2 this year, up 8% y-o-y, which greatly surpassed the expectation of the industry.


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