China backed down on iron ore prices, signing up to the same 33 percent price cut agreed by Asian rivals but only for a six-month period rather than a full year, the China Business News said on Wednesday, citing informed sources it did not name.
The deal, which could not be immediately confirmed, would conclude some nine months of tense negotiations that threatened to scupper the decades-old annual pricing ritual, and which took an unexpected turn this week when four Rio Tinto employees in Shanghai were detained by Chinese authorities.
The four, including Stern Hu, an Australian citizen and the head of iron ore marketing in China, were part of Rio Tinto's iron ore sales team, an industry source said.
The arrests come at a sensitive time as Rio Tinto snubbed a $19.5 billion investment plan by China's state-owned metals firm Chinalco last month, frustrating its efforts to wield more clout on global commodity markets, even where it is the dominant buyer, such as iron ore.
But some traders said the dention of Rio officials appeared coincidental rather than a bargaining ploy deployed by China, which arrested base metal traders a few years ago over its investigation into an alleged trade scam.
China's Foreign Ministry and Shanghai police gave no reasons for the arrests, while a spokesman for China's embassy in Canberra also declined to comment.
Australian Climate Change Minister Greg Combet said the government was making every effort to find out why the four China-based employees had been held.
Once we ascertain through the appropriate channels what exactly is going on and what the reasons for this detention involve ... we'll have something to say, Combet told reporters.
IRON ORE DEAL IMMINENT
Several Chinese steel officials contacted by Reuters on Wednesday said they were unaware of any settlement, though two sources not directly involved in the discussions said they had heard of a possible agreement, but could not confirm it.
All news should be subject to the statement from CISA and Baosteel. I have nothing to say about the news, Chen Xianwen, head of the market research department at the China Iron and Steel Association industry body, told Reuters.
The Shanghai-based China Business News, backed by a local government agency, said China had agreed to pay $0.97 per dry metric tonne unit for Pilbara blend fines and $1.12 per dmtu for Pilbara Blend lump, but only for April through October. It said negotiations were already underway for the following period.
But the newspaper said its sources could not say which of the big iron ore suppliers had signed the deal.
A 33 percent cut would be in line with what analysts have been expecting as Rio Tinto showed no inclination to relax its take it or leave it stance on the initial deal, and an economic recovery lifted spot market prices above new contract levels, leaving China with little leverage.
It's a report but it is certainly the deal that we expect to be done. It always seemed likely that the outcome would be no change from Japanese settlement, said Mark Pervan, a senior commodities analyst at ANZ.
The mills have started to preempt this move; Baosteel kept its (steel) prices on hold for its main products so they were obviously preparing for this outcome.
If confirmed, the deal would mean China's steel sector had conceded to the same price that Japanese and South Korean rivals accepted from Rio and BHP Billiton, but for only half the time, giving China's mills the chance to argue for cheaper rates if a tentative economic recovery that has revived steel prices falters.
The deal, however, will also expose China to a risk of repricing iron ore potentially at higher costs later this year when demand from elsewhere, especially Europe, is set to recover and tighten market conditions, driving up iron ore prices.
China, the world's biggest steel producer and buyer of more than half of all traded iron ore, had initially sought a bigger price cut of up to 45 percent versus 2008, but last week softened those demands after the June 30 deadline for agreeing terms lapsed, giving miners the right to suspend term deals.
An agreement will provide more certainty for miners' revenues and are likely to come as something of a relief to Chinese mills such as Baosteel and Hebei that had feared paying rising prices on a fickle spot market.
With a mechanism to review prices more frequently, the vast 800 million tonne a year trade in iron ore moves a small step toward becoming a more liquid commodity market, which would give miners more opportunity to profit from rising prices and open up trading and hedging opportunities for global banks.
Spot iron ore prices are already at four-month high of above $82 a tonne delivered in China. That is equivalent to around $65 free-on-board, above the benchmark price of some $61 that Japanese, South Korean and Taiwanese mills pay.
(Reporting by Tom Miles, Alfred Cang, David Stanway, Nick Trevethan, Rob Taylor, Denny Thomas and Mark Bendeich; Writing by Miyoung Kim; Editing by Clarence Fernandez)