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Australian company secures deal with Chinese steel mill

(Xinhua)
Updated: 2009-11-13 17:32

An Australian iron ore producer announced on Friday that it had sold the expected first five years of production from a new mine to Chinese customers.

Centrex Metals Ltd announced it had signed a five-year sales agreement for its Wilgerup project in South Australia with Shenyang Orient Iron & Steel (Group) Co Ltd plus a one-year extension option for one million tons of hematite per annum (Mtpa).

The deal follows Centrex's sales deal with its second largest shareholder, Baotou Iron & Steel (Group) Co Ltd, for the remainder of ore produced at the 1.6Mtpa mine.

The mine is expected to start production around October next year.

Baotou, China's 10th largest steel company by output in 2008, has an 8.13 percent stake in Centrex while Shenyang, a privately owned, medium-sized steel producer, holds a 5.57 percent interest.

Related readings:  Diversify iron ore sources: Minmetals  Wuhan Iron warns of profits declining by half  BHP iron ore output scales new peak  Iron ore talks get off to a bad start

The pricing for both deals will be based on Rio Tinto Ltd's benchmark for iron ore it produces at its Hamersley operations in Western Australia's Pilbara region.

However, Centrex said there would be pricing flexibility "should that pricing mechanism be replaced".

Centrex managing director Gerard Anderson has joined a growing number of iron ore sector players, including executives of BHP Billiton Ltd, who believe the benchmark pricing system's days are numbered.

Price negotiations dragged on longer than ever before this year as major iron ore producers resisted calls by Chinese steel mills for deep price cuts.

Anderson said he expected benchmark pricing would be abandoned at some stage during Centrex's five-year agreements with Baotou and Shenyang in favor of a quarterly, index-based system.