Chinese Getting A Bargain On Iron

According to Shan Shanghua, general secretary of the Chinese Iron and Steel Association (CISA), some mining companies reached an agreement with Chinese steel producers to provide a discount of 40% over the prices of iron according to the 2008 contract. The new iron ore price for 2009 remains under negotiation.

Mr. Shanghua refused to declare which big mining company accepted the deal; however other CISA source declared that Vale do Rio Doce (RIO) accepted it. The deal is retroactive to January 2009.

We believe the announcement is a good indication of the iron ore definite price that is under negotiation. We continue to expect a price reduction of iron ore for BHP Billiton (BHP) and Rio Tinto (RTP) of around 40% for 2009 and for Vale (RIO) of around 30%, as Vale had a lower price increase in 2008.

Considering that level of price correction, we see no reason to change our current Hold recommendation on Vale.

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