China mills seen resisting Vale iron ore price hike

By Alfred Cang and Lucy Hornby

SHANGHAI/BEIJING (Reuters) - Chinese steel mills have resisted Brazilian miner Vale's attempts to increase term iron ore prices for weeks, sources said on Thursday, suggesting they will not easily agree to Vale's demand for a 20 percent hike.

Steel industry sources in China confirmed on Thursday that Vale (VALE5.SA)RIO.N had emailed Chinese customers a day ago to announce it would charge 20 percent more for iron ore effective Sept. 1, an exceptional mid-cycle increase in prices that are normally agreed on a full 12-month basis.

That would bring the increase in Brazilian ore in line with the bigger rise that Australian miners won in July, heaping more margin pressure on an industry struggling to pass on higher raw material costs to end-users.

China's top mill, Baosteel, which takes the lead in negotiating term ore prices for all Chinese mills, is consulting with the government on an appropriate response after Vale approached it in mid-August, one industry source said.

"We are not likely to accept the demand. Iron ore prices are easing these days in China and the 20 percent increase sounds like an unacceptable demand," said another source at one of China's largest steel mills, who declined to be named.

Chinese mills declined any officially comment on the demand. Japan's Nippon Steel on Thursday also declined to comment about whether it had also been approached for a price hike.

South Korean steel maker POSCO (005490.KS) said it had not had further negotiations with Vale since it completed negotiations in February [nSEO151892].

A sharp fall in freight rates, which has made long-haul Brazilian shipments relatively cheaper compared to nearby Australian cargoes, gave Vale the opening it needed to push for the additional increase, industry sources said.