Iron

By Kishori Krishnan Exclusive To Iron Investing News

The heat is on. Australian miner Fortescue Metals Group (FMG.AX) said on Thursday that Chinese steel mills are unlikely to get a better deal for iron ore purchases than the 33 per cent reduction agreed by Japanese and South Korean rivals. Fortescue, Australia’s third-largest iron ore miner, said the only real choice for Chinese mills was to either accept the 33 per cent cut or take their chances on the volatile spot market.

“We’ve never heard of any steel mill in China who has said they wouldn’t prefer a benchmark, as the spot price is dangerously volatile,” he said on the sidelines of a conference. “Those that choose not to follow it, then they have to choose the alternative, that’s the spot price,” he told reporters.

The pressure has been turned on China with Korea joining Japan in the Rio iron price deal. Japan’s Nippon Steel and South Korea’s Posco renewed contracts this week with Rio Tinto (RIO.AX) (RIO.L), the world’s second-largest iron ore miner, at 97 U.S. cents per dry metric tonne unit, down a third from 144.66 cents last year.

Chinese mills are holding out for a 40-50 per cent cut, though the spot iron ore price is only slightly lower than the price agreed by their main Asian rivals and Rio Tinto.

Fortescue’s Forrest also highlighted strong Chinese demand for imported iron ore and said his firm might upgrade its production target of 26 million tonnes for 2008/09. “I think we will probably be upgrading that,” Forrest said.

South Korea’s Posco said talks with the two other major iron ore suppliers, BHP Billiton and Vale, were ongoing. “The Chinese want the benchmark system, they want the predictability, but then again once it’s set, will they honour it,” asked Fortescue’s Forrest.

“It will be interesting, whichever way China goes, it will have a formative impact on the future of the global seaborne iron ore trade. If they don’t accept the Nippon/Rio new benchmark, they will consign themselves to the spot market for all times,” he added. The iron ore chief was still confident in China’s strength through the global downturn and said he didn’t think the demand for iron ore was just re-stocking.

“The steel industry is in the bathroom in everywhere but Asia. The traditional markets of our competitors are in the loo, so they have come straight into China with gusto,” he said.

China, which buys more than half of the world’s traded iron ore, wants to see prices return to 2007 levels after six years of rallies have roughly quadrupled iron ore prices.

Traders were however happy that Fortescue Metals Group (FMG) had finally come to the party and would allow BCI to use its rail line to ship iron ore from the Nullagine mine when developed. FMG, to judge by public indications, was not all that keen on the open access idea when it came to its line – even though it had berated BHP Billiton for denying FMG and Consolidated Minerals access to the Newman route to allow the partners to develop a small stranded iron ore deposit in the Pilbara.

There was also more evidence that Canada’s Cameco must be thinking about developing the Kintyre deposit in Western Australia now that BHP has given the green light to Yeelirrie. Cameco CEO Jerry Grandey is reported to have said that his company would have to expand uranium production “dramatically” to meet rising demand for the nuclear fuel. Opening new mines, he said, was one strategy being considered.

However, China’s iron ore ‘equilibrium’ formula is likely to benefit Indian exporters of the ore more than its competitors Brazil and Australia, traders and exporters said. The development assumes significance especially from India’s point of view, as Indian exporters would receive additional orders from China due to lower freight cost.

“Being geographically advantageous due to the lower freight rates compared to Brazil and Australia, India’s iron ore demand would certainly increase,” said Haresh Melwani, CEO, H L Nathurmal & Co, a miner and exporter from Goa.

India has expertise in smaller vessels with a handling capacity in the range of 40,000 – 125,000 tonnes. This means if India wants to take advantage of the situation, it will have to improve the infrastructure to handle larger vessels, said Glenn Kalavampara, secretary of Goa Mineral Ore Exporters’ Association.

“Presently, the same thing is being practiced and we see no change in the “equilibrium” formula as exporters have to bear the brunt of the shipment cost. All prices are negotiated on a free-on-board (FOB) basis which means ex-Chinese port price,” said R K Sharma, secretary general of Federation of Indian Mineral Industries.

Meanwhile, the cash flood into the resources sector continues. Contractor Ausenco is seeking to place $40.5 million in new shares along with a shareholder purchase plan, while White Energy and Oropa have unveiled their own SPP offerings. And that’s just within a few hours of each other, adding to the huge amounts raised collectively by other resources companies in past weeks. Strike while the iron is hot (or fear is temporarily abated) seems to be the motto for these firms.

Company news

Oregon Iron Works Inc. subsidiary United Streetcar LLC on Wednesday announced it has been awarded a $26 million contract to build streetcars for the city of Tucson, Ariz. It’s the second major manufacturing contract for the Clackamas-based company, which has also received an estimated $20 million contract to build streetcars for the eastern expansion of the Portland streetcar system.

The work to build the seven cars for Tucson and estimated six cars for Portland is expected to be a job generator.So far, United Streetcar has only built a single prototype, but the work yielded 20 jobs. The company’s growth was facilitated last month by news that the Portland project would receive a $75 million federal investment to finish the work.