The steel producers include Japan's Nippon Steel (NSC), Sumitomo Metals, Nisshin Steel, Kobe Steel and JFE Steel, plus Korea's Posco.

As a result of negotiations, the iron ore prices for Vale's Southern System fines (SSF) increased by 65% compared to 2007, FOB from the Tubarão port in Brazil's Espírito Santo state, Vale said in a statement.

"At the same time, due to its recognized superior quality, it was agreed that the price for Carajás iron ore fines [SFCJ] will have a premium of US$0.0619 per dry metric tonne Fe unit over the 2008 price for the SSF," Vale said.

Therefore, the new reference prices per dry metric ton Fe unit for 2008 are US$1.1898 for SSF and US$1.2517 for SFCJ. The SFCJ increase amounts to 71% compared to 2007, according to Pedro Galdi, an investment analyst with ABN Amro Real Corretora.

The hike in the steelmaking input value for this year follows a 9.5% rise that Vale secured for its selling price for 2007, after a 19% increase the year before and a 71.5% jump in 2005.

"The iron ore price settlement with large high-quality companies and traditional customers such as NSC and Posco is evidence of our commitment to the benchmark pricing system, respecting the weight of the long-term relationship and trust involved in these negotiations," said the miner.

ANALYST REACTION

The price increase secured by Vale surpassed "the most optimistic expectations from analysts," Galdi told BNamericas.

"We were working with 30%, but there were some market analysts that were working with 50%," the analyst said via email, adding the hike in 2008 prices was "excellent and should provide a strong cash generation for the company [Vale] in 2008."

With the iron ore price talks for this year now in the past, attention will now turn to the negotiations for Vale's possible acquisition of Swiss miner Xstrata (LSE: XTA), said Galdi.

Rio de Janeiro-based Vale is the world's largest iron ore producer and churned out 296Mt last year. The group is carrying out plans to add new capacity to reach an output capacity of 450Mt/y by the end of 2012.

Roberta Pregnaca
Business News Americas