The iron ore and coal price boom continues with strong demand from Asian mills driving quarterly prices higher.
BHP Billiton and Rio Tinto have notified Japanese steelmakers that the iron ore price for the July-September period will be raised about 23% from the previous quarter.
That’s less than the 30% to 35% price rises being tipped 10 days ago in trade reports.
Spot prices have weakened in the past couple of weeks as doubts about China’s economy have grown.
But the media reports in Tokyo and here yesterday were the driver for yesterday’s surprise 1.3% rise in the Australian stockmarket, led by higher prices for BHP Billiton and Rio Tinto.
That was after a fall on Wall Street and Europe on Monday night.
BHP shares rose 48c, or 1.3%, to $37.02 and Rio shares rose 1.8%, or $1.20, to $66.75 (despite a 2% fall in copper prices in London on Monday night).
But the second consecutive quarterly price rise will put iron ore at about $US147 a tonne, 140% higher than the 2009-2010 (March 31) year price, and around spot price levels which have fallen back from around $US185 a tonne (including freight from Australia).
The reports also said Brazil’s Vale, the world’s biggest exporter, is likely to follow suit.
Vale last week confirmed it was seeking price rises for the second quarter and that it was offering its customers a variety of pricing mixes based on different indexes.
The 40-year-old annual iron ore pricing system collapsed in April when Rio Tinto followed BHP Billiton and Brazil’s Vale in adopting quarterly negotiated contracts.
The Nikkei business paper said that Japanese steelmakers were likely to settle for a price close to the proposed figure.
Reuters reported that the head of Baosteel, the big Chinese steel maker, as saying the third quarter of the calendar year (July-September) will be tough because of an expected rise in iron ore prices.
But the company said the December quarter would be easier because iron ore prices are expected to fall.
With rapid price hikes in high-grade coal and iron ore, Japanese steelmakers are being forced to pass on the increases to big users, such as carmakers, as their Chinese and South Korean competitors are.
The Nikkei said Toyota and Nippon Steel are negotiating a 25% price rise for cold flat rolled steel, a key car making product.
Coking coal prices are also up around 12.5%, according to reports of settlements between BHP Billion and Japanese mills in late May/early June.
There had been reports that prices would rise by 10%-15%, so the increase is right in the middle.
The price rises for iron ore and coking coal cover the July-September period and are the first to be conducted via the new quarterly pricing system linked to the spot market.
The scheme replaced the 40-year-old system of annual contracts and price negotiations that sometimes dragged on for months.
