Fortescue Metals (ASX: FMG) has reported an agreement with Baosteel Group Corporation (Baosteel) and China Iron and Steel Association (CISA) for an agreed China price for all Fortescue iron ore sold to Chinese mills for the period July 1 to December 31, 2009.
The agreement, signed by Baosteel and CISA, commits Chinese steel mills to acquire approximately 20 million wet metric tonnes from Fortescue for the period between 1 July and 31 December 2009.
The agreed price is US$0.94 / dry metric tonne unit (“dmtu”) for Fortescue’s Rocket Fines (on an FOB basis) and is around 3% under the price agreed by other Australian producers with non Chinese Steel mills.
This price equates to approximately 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.
In return, Chinese steel mills will provide finance to Fortescue of US$5.5 billion to US$6 billion.
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.”
Fortescue said that while the price of steel in China has nearly doubled over the past three months, it has fallen by 20% over the past 10 days alone, reflecting the continued volatility in the industry.