Rio Tinto secures 85 percent rise in 2008 iron ore contract prices

June 23, 2008

June 23rd (Forbes) – Rio Tinto said it secured an overall 85 percent increase in iron ore prices for the contract year starting April 1, 2008.

The world’s third-largest mining group said the price for iron ore fines will increase 79.9 percent to 144.66 cents per dry metric tonne, while lump iron ore prices will jump 96.5 percent to 201.69 cents a metric tonne. The overall 85 percent rise is based on the production split with fines accounting for about three quarters of output and lump iron ore the remainder.

The price increase exceeds the 65 percent rise secured by Vale, the world’s largest iron ore producer, for fines and the 71 percent gain the Brazilian company agreed for lump iron ore under the annual contracts with steelmakers.

Rio Tinto and BHP Billiton (nyse: BBLnews people ), which has yet to announce its price settlements for 2008, have been looking to receive a ‘freight premium’ to reflect the lower cost of shipping ore to China from their mines in Australia than from Brazilian mines.

Iron ore was responsible for about 29 pct of Rio’s underlying earnings in 2007 on a pro forma basis.

Rio Tinto said its Hamersley Iron unit secured the higher prices from Baosteel, China’s leading steelmaker.

Negotiations this year for prices effective from April 1 have been more protracted than usual. The latest increase in iron ore prices, which comes on top of five consecutive price hikes since 2001, is expected to put a further squeeze on profit margins of steelmakers.

China’s steelmakers have expressed concern that BHP Billiton‘s proposal to merge with Rio Tinto would place too much pricing power in the hands of too few suppliers.

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