October 24, 2011 / 1:52 AM / 7 years ago

Rio Tinto: fall in iron ore prices accelerating

SYDNEY (Reuters) - Global miner Rio Tinto (RIO.AX) (RIO.L) said on Monday iron ore demand remained robust despite market weakness, and said a fall in prices was accelerating a move to shorter-pricing methods.

Rio, which is speeding up a program to lift output by 50 percent to 333 million tons a year by 2015, said its iron business was set to grow substantially over the next five years and industrial production in China remained robust.

“Shipments are strong and we are selling everything we can produce,” Rio Tinto Chief Executive Tom Albanese said in a presentation.

He said 86 percent of third-quarter sales were quarterly lagged, as miners moved to price a shorter duration from annual contracts.

Mining companies in 2010 created a quarterly system for iron ore that replaced the aging benchmark system, one based on annual talks between miners and steel mills. The contracts could get shorter.

The quarterly iron contracts are based on the average of spot prices over a three-month period ending a month before the start of each quarter

Albanese’s comments come as Rio and BHP Billiton (BHP.AX) aggressively sold directly into the spot market over the last month after running their mines above capacity undermining prices.

Iron ore prices plummeted 8 percent last week, the seventh straight week of losses and the sharpest drop since July 2010 as demand from top consumer China slips.

Chinese steel mills under pressure to maintain sales margins are said to be delaying iron ore purchases.

Data from China showed a slower-than-expected 9.1 percent third-quarter GDP growth, evidence of a slowdown in its steel sector was mounting.

Brazilian miner Vale VALE5.SA said last week it was open to discussing different iron ore pricing systems with its clients, as a tumble in the price of ore has led to pressure from steel mills for more flexibility.

Vale has told Chinese steelmakers it will give them options to buy the raw material cheaper, sources told Reuters last week, as spot prices for iron ore have dropped below the quarterly contract system created last year.

Reporting by Narayanan Somasundaram; Editing by Ed Davies

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