Mt. Gibson Passes on Iron Ore Settlement to China

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30 May 2009

Mt. Gibson Iron Ltd., Australia’s fourth-biggest iron-ore producer by market value, passed on the 33 percent cut in benchmark prices agreed by Rio Tinto Group and Japanese steel mills this week to customers in China. “They don’t need to respond, the fact of the matter is that’s what we invoice them at and that’s what they will be paying,” Luke Tonkin, managing director of the Perth-based company, said today in a phone interview.
Steel mills in China, the world’s biggest buyers, have called for contract prices to be cut by as much as 50 percent and may resist the Rio accord. Tonkin said he didn’t foresee any issue with his Chinese customers agreeing to the new prices under the terms of their existing long-term contracts.
“Our major shareholder has acknowledged that there has been a change in the benchmark price,” said Tonkin, referring to Shougang Concord International Enterprises Co., a unit of China’s ninth-largest steelmaker Shougang Corp.
Mt. Gibson rose 1.3 percent to 77.5 cents at the 4:10 p.m. Sydney time close on the Australian stock exchange. APAC Resources Ltd., a Hong Kong-based investment company, owns a 26 percent stake in Mt. Gibson and Shougang owns 14.3 percent.
Calls to Shougang’s offices in Beijing and Hong Kong weren’t immediately returned. China has a public holiday today. A woman, who declined to provide her name, answered the phone at Shougang Concord’s Hong Kong office, saying no one will be available for comment until Tuesday.
Interim Prices
Rio agreed to cut prices to about $61 a metric ton for its benchmark Hamersley ore from about $91 a ton for the year started April 1, bettering forecasts from Goldman Sachs JBWere Pty, UBS AG and Morgan Stanley for a 40 percent drop. Mt. Gibson had agreed to an interim price cut of 30 percent for its customers when the old contract year ended March 31, Tonkin said.
“Our customers certainly didn’t have problems with the interim prices and I’m sure they are probably relieved that the final settled price is probably a little lower than the interim price,” Tonkin said. “Our contracts are very clear, it is based on a Hamersley price into Asia, it doesn’t relate to whether it goes into China, blue sky or Europe.”
Mt. Gibson is seeking to ship about 5.2 million metric tons of iron ore for the year ending June 30, Tonkin said today. The company expects to export “just short” of 6 million tons next year, he said.

Source: Bloomberg