Vale seeks to raise prices for Asian steelmakers

SAO PAULO, Sept 9 (Reuters) - Brazilian mining giant Vale said on Tuesday it was in talks with Asian steelmakers about raising iron ore prices halfway through the annual contract cycle, an unprecedented move that cast doubt on the future of the long-standing practice of negotiating prices once a year. Vale said it was seeking to increase prices for Asian clients in line with those charged to European steelmakers, which currently pay 11 percent to 11.5 percent less, depending on the grade of iron ore. The increase would come on top of the 65 to 71 percent price rise that Vale agreed on with Asian steelmakers for the year beginning on April 1. It would also mark an abrupt departure from the decades-old annual price negotiations system between the world's top mining companies and steel producers. The world's largest producer and exporter of iron ore, Vale stressed that the talks were in an initial phase. "This negotiation is not concluded and there is no guarantee that it will be successfully concluded," it said in a filing with Brazil's securities regulator. Since reports started circulating last week that Vale was demanding a price increase, steelmakers in China, Japan and South Korea have declined to comment. But sources at some Chinese mills told Reuters last week that they planned to rebuff the price increase. Still, Vale may have the upper hand in the negotiations. One-fifth of China's ore imports are from Brazil, which produces high-quality iron ore that is coveted by steelmakers. "They're going to have to accept it because there simply isn't an abundant amount of iron ore on the market," said Pedro Galdi, a mining analyst at SLW Corretora, a Sao Paulo brokerage. Vale may believe that Asian buyers can afford to pay more now that freight rates have nearly halved since June, making long-haul Brazilian shipments less costly. The proposed increase would also lift prices on par with those charged by Australian rivals Rio Tinto and BHP Billiton, which wrung out a larger price deal earlier this year with Asian clients due to the shorter shipping distance. If Asian steelmakers accept the price rise, Vale said the revenue increase would be equivalent to less than 3 percent of its total revenues in the 12-month period through June, when revenues were $35.5 billion. Despite the prospect of a jump in revenue, Vale's shares were down 2.58 percent at 33.95 reais in early afternoon trading in Sao Paulo, tumbling in line with slumping metals prices on world markets.