China’s biggest steel producer, Baosteel Group (寶鋼), agreed to price hikes of up to 96.5 percent with iron ore supplier Rio Tinto, the companies said on Monday amid surging demand for tight metal supplies.
Baosteel represents China’s steel mills in talks with iron ore suppliers, so the price hikes would apply to all Rio Tinto customers in the fast-growing Chinese industry.
Baosteel will boost prices it pays London-based Rio Tinto PLC’s Hamersley Iron unit by 78.9 percent to 96.5 percent for various grades of iron ore in the 2008 buying year, the companies said.
A Rio Tinto spokesman added that the hike would be retroactive to April 1.
“The agreement reflects the continuing very strong demand in the market for Hamersley’s products,” Sam Walsh, chief executive of Rio Tinto’s Iron Ore Group, said in a statement.
Walsh said the deal would be the benchmark for Hamersley’s other iron ore sales this and next year.
SURGING DEMAND
Surging demand from China’s booming steel industry has driven double-digit increases in iron ore prices for the past six years.
That has come despite efforts by Chinese mills to band together in an attempt to hold the line in price talks.
Rising demand has brought a financial windfall for ore suppliers such as Rio Tinto, Brazil’s Companhia Vale do Rio Doce SA and Australia’s BHP Billiton Ltd. They are investing heavily to increase output.
Baosteel agreed in February to a 65 percent price increase with Vale on behalf of Chinese mills. Steel producers in Japan, South Korea and Europe accepted similar price rises.
China is the world’s biggest producer and consumer of steel.
The boom has been driven by demand for steel from thriving Chinese export manufacturers and to supply a nationwide building boom.
The Chinese government has been encouraging Chinese steelmakers to merge in an effort to create more efficient producers big enough to compete in global markets.
TANGSHAN MERGER
A major state-owned producer, Tangshan Iron & Steel Group (唐鋼集團), said this month it planned to merge with rival Handan Iron & Steel Group (邯鋼集團) to create China’s biggest steelmaker.
Tangshan said the merged company would have total production capacity of almost 32 million tonnes of steel per year, compared with Baosteel’s 30 million tonnes, according to the government’s Xinhua news agency.
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