Tuesday, April 6, 2010

The Iron Ore Wars: Prices 90 to 100% Higher, Europeans Lose Power, Chinese Move Backfires, Vale Wins Big

Brazil's Agencia Estado reports today on the state of iron ore. The international crisis at the end of 2008, which devastated much more of the European economy than the Chinese. Still in recovery, the European steel industry tried to block the increase in the price of iron ore of 90% on average.

The Eurofer association represents the region's steelmakers and says it is "outraged" with the increase proposed by Vale and argues that a market with competitive prices is essential for the strong recovery of world economy. They go as far as mention the possibility of recession in Europe because of the readjustment. In recent weeks, the European steel banded together to resist pressure from the Valley. But who is closely following the negotiations believe that, against a backdrop of strong global demand for raw material, these companies have little bargaining power to force a smaller increase. Traditionally, Europe has absorbed about 30% of the ore sold by Vale. In 2009, still under the impact of the crisis, the percentage dropped to nearly 17%.

Chinese steelmakers have already shown a greater resignation to the proposed increase. The explanation lies in the increasing need for input of Chinese companies, which have pushed its steel production to cope with the pace of accelerated growth of the local economy. Last year, when the international crisis has caused havoc in the industry, the Chinese steel mills were the ones to stomp their feet and boycott Vale's offer to lower their prices by almost 30%. They wanted a reduction around 50%. With no agreement, China ignored the long-term contracts and then migrated to the spot market, which operated with much lower numbers. With the recovery in global demand, the price of the input shot higher and the move backfired badly.

Today, the product is listed at a value more than 100% above the 2009 levels.

VALE raises prices

Vale informed Friday that it has reached agreements to readjust prices to most customers. The information circulated on the market is that the increases range from 90% to more than 100%.

Vale's share price has done extremely well, in USD.

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