Rio Tinto Ltd and BHP Billiton Ltd have reportedly agreed to a temporary 40 per cent cut to iron ore prices.
Rio Tinto Ltd and BHP Billiton Ltd have reportedly agreed to a temporary 40 per cent cut to iron ore prices, China's steel mills say. The China Iron and Steel Association (CISA) said reduced prices would be in place until a formal benchmark deal was done, according to a Merrill Lynch report. The current benchmark price of about $US92 per tonne for iron ore fines and $US129 for iron ore lump was negotiated when prices were at historic highs, but ends for many contracts this week.
Steelmakers typically continue paying last year's prices until the new benchmark rate is settled but have reportedly asked that a lower temporary rate be established.
The iron ore price is traditionally negotiated between steel makers and the three largest iron ore producers - Brazil's Vale, Rio Tinto and BHP Billiton.
"We think it is possible that a temporary price deal has been done between the iron ore majors and China's steel mills," Merrill Lynch analysts led by Tom Price said in a note to clients.
Spokesmen at both BHP Billiton and Rio Tinto refused to comment on the price negotiations while they were ongoing.
Demand for iron ore has fallen steeply in recent times, after steel production rates dropped between 30 and 50 per cent in key markets as the global economic crisis took hold.
The Merrill Lynch report said BHP Billiton is likely to set the final benchmark deal, with Brazil's iron ore giant Vale taking a back seat in the talks.
Rio Tinto may also stay out of the talks while it develops a corporate relationship with consumers, the report said.
Chinese steelmakers are the world's largest buyers of iron ore.