CVRD to Increase Iron Ore Price by 19% for 2006

World largest iron ore miner, CVRD of Brazil announced on Monday the firm agreed with German steel maker, ThyssenKrupp to increase the iron ore contract price by 19% for 2006 shipment from 2005. The price increases for 4 years in a row. They agreed to reduce pellet price by 3%. They finally concluded the half year long negotiation since the end of 2005. The agreement is likely to be benchmark for world steel makers and Japanese major integrated steel makers will also follow the move. Japanese steel makers could pay 100 billion yen more for iron ore for fiscal 2006 ending March 2007 from fiscal 2005 when the all purchased ore FOB price would increase by 19%. The new price is US$ 0.77 per dry metric ton unit or DMTU, which represents Fe 1% of a tonne ore, at FOB Ponta da Madeira for Carajas fine ore. The price represents US$ 51 per tonne for ore with 66% Fe. The price renewed former record for 2005 and increased by 166% in the 4 years. The supply is tight under natural hazard including cyclone in Australia along with growing demand in China. The supply balance resulted in the wide increase of the annual contract price as 19.5% in 1980 and 18.6% in 2004 with exception of 71.5% increase in 2005. European steel maker settled the price negotiation earlier than Japanese for the first time in 2 years. The price is likely to spread to world iron ore market with accepted benchmark, which a major miner and an European or Japanese major steel maker settle the negotiation to decide, though Chinese interests could resist that. Japanese integrated steels restarted the negotiation with Australian and Brazilian miners on Tuesday. CVRD agreed with ThyssenKrupp to reduce the price by 3% to US$ 1.12 per DMTU at FOB Tubarao for blast furnace pellet for 2006 shipment from 2005. The price decreases for the first time in 4 years. The price was apparently adjusted after it increased by 87% for 2005, which was wider hike than iron ore. Japanese steels would pay 100 billion yen more for iron ore for fiscal 2006 from fiscal 2005 if the price would increase by 19% for all grades of ore including lump ore, which presents around 30% of total 130 million tonnes of annual import. Their cost differentiation between fiscal 2005 and 2006 is unknown when they keep talking for semi- and non-coking coal price though they got 8% or more down for hard coking coal price. They could pay more for raw materials depending on the ongoing negotiation for fiscal 2006 from fiscal 2005 when zinc price surges along with potential jump for iron ore.