China May Ask Rio, Vale to Cut Iron Ore Prices by 82%

China, the world¡¯s largest iron ore consumer, may ask Rio Tinto Group and rivals to accept an 82 percent price cut for the raw material after steel prices plunged to 1994 levels, an industry official said.

¡°Iron ore prices should keep pace with steel prices which have fallen to the 1994 level,¡± Shan Shanghua, secretary in general of the China Iron and Steel Association, said today in a phone interview. ¡°We are asking for a big drop in iron ore prices.¡±

China¡¯s demands would be more severe than the 50 percent price cut that Australia and New Zealand Banking Group Ltd. has forecast for producers Cia. Vale do Rio Doce, Rio Tinto and BHP Billiton Ltd. All Chinese steelmakers were unprofitable in October as exports and demand from carmakers and builders slumped, the country¡¯s association said.

¡°It¡¯s going to be a difficult price negotiation as miners and mills are divided in the market outlook,¡± said Helen Lau, a Shanghai-based analyst with Daiwa Securities Group Inc. ¡°But iron ore prices are determined by demand, not steel prices. The association¡¯s comment is part of negotiating tactics.¡±

Benchmark contract iron ore fines sold by Rio Tinto, the second-largest supplier, this year cost around $92.58 a metric ton, and it was sold at around $16.685 a ton in 1994, according to Bloomberg calculations. Pushing iron ore prices back to 1994 levels to pace the decline in steel prices in China would mean an 82 percent decline.

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