* Vale joins Australian miners in offering contract
* Competition among top miners to lure Chinese buyers heats
* Growing supply may help China gain upper hand in pricing
By Ruby Lian and Fayen Wong
SHANGHAI, June 26 Brazil's Vale, the
world's biggest iron ore miner, is starting to offer discounts
on shipments of the steelmaking raw material to top consumer
China, joining Australian rivals in cutting prices following a
global surge in production.
The move follows deeper price cuts by Rio Tinto and
Australia's Fortescue Metals Group for lower-grade iron
ore, and indicates China is winning more say over pricing after
years of complaining that costs were too high.
Vale is offering some Chinese customers a discount of $2.50
a tonne, including cost and freight, for 62-63 percent grade
standard sinter feed Guaiba (SSFG) for third-quarter contracts,
three mill sources with direct knowledge of the matter said.
"We've been told by Vale that we would get a price cut of
$2.50 a tonne for SSFG for third-quarter contracts. The market
is now changing quickly to a buyer's market and competition
among miners is intensifying," said an iron ore buying official
with a state-owned steel mill.
Benchmark 62-percent grade iron ore .IO62-CNI=SI hit a
21-month low of $89 a tonne on June 16, but has since edged back
to $93.70 a tonne.
An official with another large state-owned steel mill, which
also sells iron ore to other mills, said the company was still
in talks with the Brazilian miner but some of its customers had
been offered the same discount.
A Vale spokeswoman in Shanghai declined to comment on
Iron ore prices have fallen about 30 percent this year amid
rising production, leading some steel mills to cut back
long-term contracts in favour of cheaper spot cargoes, forcing
miners to cut prices to entice buyers.
China buys about two-thirds of global seaborne ore. In the
first five months of 2014, its imports rose 19 percent to 382.7
million tonnes. But shipments from Australia jumped 34 percent,
while those from Brazil rose only 10 percent.
Vale mainly produces high-grade iron ore with above 60
percent grade, but competes with Australian miners such as BHP
Billiton that have lower shipping costs to
The company has built a fleet of massive "Valemax" ships,
each with a capacity of about 400,000 deadweight tonnes, to cut
its shipping costs, but Beijing has so far banned the ships
entry to Chinese ports.
Traders said Australian suppliers are also offering more
flexibility on pricing to attract Chinese customers.
Vale sees the global seaborne iron ore market growing to
1.81 billion tonnes by 2020 from 1.23 billion tonnes last year.
It is on course to increase annual iron ore output to 450
million tonnes per year by 2018 from 306 million tonnes in 2013,
but rivals Rio Tinto, BHP and Fortescue have also increased
"The availability of iron ore has risen to a persistently
high level not seen in the past 10 years," Standard Chartered
analyst Judy Zhu said in a recent note.
Any rebound in demand over the next six months would be
matched by increased supply, capping any upside for iron ore
prices this year, she added.
(Editing by Richard Pullin)