News

Oz's Atlas Mining inks 'pricing' deal

By Zhang Qi (China Daily)
Updated: 2009-08-06 08:05

Australian miner Atlas Mining has signed price "fairness" agreements with Chinese steel mills considering the uncertainty over future iron ore prices, Reuters quoted the company's chief executive as saying yesterday.

"We've got agreements that are based upon a benchmark but if the spot price varies above or below the benchmark at a certain point... we would get half of the upside, but we also share half of the downside," Managing Director David Flanagan said at the Diggers and Dealers mining conference in Kalgoorlie, Western Australia.

The agreements come at a time when the annual price talks between Chinese steel mills and global miners have reached a stalemate after the detention of four Shanghai-based employees of Rio Tinto on charges of commercial espionage.

The conditions apply to iron ore sold to each of Atlas' four customers, all of which make steel in China and are triggered at varying price levels, Flanagan told Reuters.

But he didn't disclose details such as how the new adjustment will be implemented and who these Chinese customers were.

Qi Xiangdong, deputy secretary-general of the China Iron and Steel Association (CISA), said the industry lobby was not informed of the deal by the Australian miner, but that the agreement was in line with CISA's attitude toward the pricing mechanism.

Luo Bingsheng, vice-chairman of CISA, had said earlier that annual negotiations on the pricing system would not change, but given the unpredictable conditions, the pricing system should have room for adjustments in line with the prevailing situation.

BHP last week agreed to sell 30 percent of its iron ore under the new pricing mechanism, signaling a break with the 40-year-old tradition of settling annual contracts in Asia. The iron ore would be sold through a mix of cash, quarterly and indexed pricing.

"Chinese steel mills have reduced orders from Rio Tinto after the scandal," said Yu Liangui, a senior analyst at Mysteel.

"China will weaken its imports from Rio; so, other Australian miners might see it as an opportunity to fill the gap, and expand their market in China, the world's largest iron ore buyer."

The country received 56.5 million tons of iron ore last month, 35 percent more than a year earlier, according to the Ministry of Transport website.

Data from ASXMarine indicated that spot iron ore vessel bookings from Brazil to China surged 62.4 percent from the previous month, while vessel bookings from Australia's main iron ore ports dropped 22.5 percent in the same period.

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Yu also said the new agreement was a sign of smaller Australian miners' changing attitudes - not to follow the mechanism of BHP and Rio, and conducting talks with Chinese mills separately.

However, Yu believed the new agreement wouldn't affect the annual price talks with the three global miners as the output of Atlas and other Australian miners was fairly small compared to the over 100 million tons of annual output by Rio and BHP.

Flanagan from Atlas said the company planned to expand its output to 12 million tons by 2010, up from the current 1 million tons.

This would place Atlas behind Rio Tinto, BHP Billiton and Fortescue Metals Group Ltd as Australia's fourth-largest iron ore miner by 2012.