Fortescue in talks on whether to continue discount ore sales

Fortescue Metals Group, Australia's third-largest iron or miner, says it is in talks over whether to continue to sell ore to mainland steel mills at discounted prices.

Fortescue agreed in August to sell ore to China at 3 per cent below the price agreed between mining companies and Japanese steel mills, in return for up to US$6 billion in funding from Chinese institutions.

However, the deal fell apart after Fortescue was unable to agree terms on the funding, leaving the discounted pricing in doubt. 'We are still in discussions over how to price the rest in the final quarter,' executive director Graeme Rowley told Reuters yesterday.

Fortescue sold about 10 million tonnes of ore to the mainland last month at discounted prices but is not obliged to continue. The deal was done following the collapse of the annual iron ore negotiations between the China Iron and Steel Association, which was leading the talks on behalf of mainland steel mills, and Rio Tinto on behalf of the miners.

China had demanded a greater say in setting iron ore prices and had been asking for a 40 per cent reduction in last year's prices. Rio refused to offer more than the 33 per cent reduction agreed with Japan, South Korea and Taiwan.

As a result, there was no agreement and the lack of a benchmark price has resulted in a chaotic market for iron ore in China this year. About 60 per cent of iron sales were done at spot market prices, which at one point were 80 per cent higher than the contract price offered to Chinese negotiators.