Fortescue agrees 35pct ore discount as China looks away from big three
China has agreed to buy iron ore from Fortescue Metals at a 35 percent discount until the end of the year. China has been investing billions globally trying to reduce its dependence on Vale SA, Rio Tinto and BHP Billiton for iron ore and had been asking the big three miners for a 45 percent discount on contract iron ore. They had so far only agreed to a 33 percent cut.
Under the current agreement, Chinese steel mills will acquire 20 million wet metric tonnes from the Fortescue over the period and provide financing of US$5.5bn.
Fortescue said that while the price of steel in China has nearly doubled over the past three months, it has fallen by 20 percent over the past 10 days alone, reflecting the continued volatility in the industry.
Fortescue CEO, Andrew Forrest, said: "The agreement eliminates that price uncertainty, sets a solid platform for Fortescue to deliver increased product into China and affirms our close working relationship with CISA and all Chinese steel mills."
The agreed price is US$0.94 / dry metric tonne unit ("dmtu") for Fortescue's Rocket Fines (on an FOB basis) and is under the benchmark 33 percen discount set by the large mining firms with Korean and Japanese steelmakers. This price equates to approximtately US$55.50 per dry tonne for Fortescue grade iron ore. Fortescue has also agreed a lump price of US$1.00/dmtu for high grade lump which is equivalent to approximately US$61 per dry tonne FOB.
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