* Nippon, Vale agree to $100-$110/tonne for Apr-Jun-source
* Deal creates quarterly deal, boost move to spot pricing
* May help set floor for talks with Chinese
(Changes dateline, recasts with source confirmation)
By Brian Ellsworth and Yuko Inoue
RIO DE JANEIRO/TOKYO March 30 Brazilian mining
giant Vale has reached tentative quarterly iron ore price deals
with Asian steel companies that would boost prices by about 90
percent, sources with knowledge of the talks said.
The move could mark the first quarterly pricing deal for Vale
(VALE5.SA)(VALE.N), the world's top iron ore producer, which for
years defended the decades-old benchmark system but recently said
it was adopting more flexible marketing.
Vale and Nippon Steel, Japan's biggest steel producer and the
world's second largest, have reached a basic agreement to pay
$100-$110 per tonne of iron ore in the April-June quarter, a
source told Reuters. Nippon Steel declined to comment.
That would also mean a roughly 90 percent price hike for
South Korea's Posco (005490.KS), which negotiates jointly with
The near doubling in negotiated iron ore prices would set an
important benchmark for purchases by China, analysts said, and
points towards sharply higher steel prices globally for a range
of industries including auto manufacturing and construction.
The Nikkei newspaper reported earlier on Tuesday that Nippon
Steel and Vale had a provisional agreement for $105 a tonne, but
that negotiations would continue towards a final deal by the end
of next month, to be applied retroactively to April 1.
"If that's the case, it's excellent, even though the market
was already expecting $100 to $110. This will strongly increase
revenues," said Pedro Galdi, an analyst with SLW Corretora.
A Vale spokeswoman said the firm would not comment on the
Big miners have been pushing for a big price hike to reflect
a doubling in the spot iron ore price since September.
Sumitomo Metal, Japan's No. 3 steelmaker, has also reached a
tentative deal to pay 90 percent more for iron ore, another
source with knowledge of its talks with Vale said. A spokesman
for JFE Holdings (5411.T), Japan's second-largest steelmaker,
said it was still in negotiations and had not yet reached a deal.
The world's top three miners, Vale and Anglo-Australians BHP
Billiton (BHP.AX) and Rio Tinto (RIO.AX) are pushing to change
the rigid benchmark system into a derivative-driven system
similar to other global commodities such as oil.
Some steel mills have resisted the call to move towards spot
pricing, particularly in Europe. But the acceptance by relatively
conservative steel mills such as Nippon and Posco, shows the
growing strength of that trend.
"The chance of returning to an annual benchmark system for
iron ore is very slim, at least for now, because of the tight
market conditions," a Japanese steel industry source with
knowledge of the talks said.
Graphic suite on iron ore: r.reuters.com/zed75j
More coverage of iron ore pricing: [ID:nSGE62B0DU]
CONTRACT? WHAT CONTRACT?
"The long-term contract worked for 90 years very well for
both sides, for both the client and the miner," Vale CEO Roger
Agnelli told reporters in Sao Paulo, without commenting on
whether or not Vale had closed contracts with steelmakers.
"I think that model that we are proposing and talking about
with clients, of quarterly averages, is helpful for us to be able
to complete our investment projects."
Analysts say Chinese clients began buying on the spot market
when prices fell below benchmark after the global financial
crisis broke out but insisted miners honor the benchmark as spot
prices soared toward the current level.
"Last year when we thought we had a contract, most of our
clients just looked at us and said 'Contract? What contract?'"
Vale has for months insisted that benchmark prices informally
agreed upon last year no longer reflect the reality of supply and
Mills argue steel prices have not recovered sufficiently and
demand is too weak to pass on to clients their increased costs of
iron ore and coking coal.
Vale shares were up 1.77 percent at 49.41 reais on the Sao
Paulo stock exchange, while American Depository Shares in New
York were up 3.93 percent to $32.00.
CHINA TALKS, CHINA RISK
An acceptance of the aggressive price-hike by relatively
conservative Asian steel mills suggests that price may become a
baseline for purchases of iron ore by China.
"We also anticipate that Chinese iron ore prices will settle
at least as high, if not higher than other Asian players," said
consulting group Steel Market Intelligence in a research note.
"We continue to believe that China's main assertion, that as
the largest buyer of iron ore they should be paying a lower
price, is flawed."
It added China will likely pay a premium for buying iron ore
given the perceived political risks of doing business there.
A Shanghai court on Monday sentenced four Rio Tinto
executives to prison terms of seven to 14 years on charges of
accepting bribes and stealing commercial secrets, ending a saga
that began in the middle of tense 2009 iron benchmark talks and
led to those talks unraveling without a formal agreement.
China's rapid economic growth, coupled with the financial
crisis, upended the iron ore business by making Beijing the most
powerful buyer -- letting its quasi-state steel giants and dozens
of importers overturn established market protocol.
(Additional reporting by Denise Luna in Rio De Janeiro and Anand
Basu in Bangalore)
(Editing by Rene Pastor)