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September 5, 2009

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Iron ore price talks stall over discount costs

IRON ore suppliers and China have broken off price talks and it is unclear when they will resume, an executive of Rio Tinto Ltd, which is negotiating for the suppliers, said yesterday.

The talks on supply contracts for the supply year that began July 1 are deadlocked over how deeply to cut prices following two years of sharp increases.

"At this point in time we're not negotiating," Sam Walsh, chief executive of Rio's iron ore business, said in the western Australian city of Perth. He said talks might resume. "I expect they will, but I don't know when."

China, the world's biggest steel maker, is pressing for price cuts of up to 40 percent following two years of increases totaling more than 100 percent. Major suppliers agreed to a 33 percent cut with Japanese and Korean steel mills this year.

Walsh said without a contract, Chinese mills are buying iron ore at prices "based on the benchmark" set in talks with other customers this year. The other major suppliers are BHP Billiton Ltd and Brazil's Vale SA.

Prices could be changed retroactively to July 1 if Rio and the China Iron and Steel Association, which is negotiating for the country's mills, reach an agreement.

Tensions over the talks rose when four Rio employees were detained in Shanghai on July 5 and later charged with bribery and commercial espionage.

Walsh noted that case was proceeding but did not say the suspension was connected to it.

Smaller supplier

"We are respecting the judicial system and we're pleased that our four employees have been able to hire top-notch lawyers," Walsh said.

"We're supporting but standing back from that process and allowing the judicial system to take effect," Walsh added.

A smaller Australian producer, Fortescue Metals Group, agreed on August 20 to supply iron ore to China in a deal that Chinese authorities said set a benchmark for prices. But Rio said the deal would have no effect on its own talks.


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