NEW YORK (TheStreet) -- Vale (VALE) - Get Report, the Brazilian iron-ore producer and largest exporter, defended itself against China's accusations that its iron ore prices are too high and are being fixed by iron ore miners.
Adopting a new quarterly pricing regime, Vale expects to raise its prices by almost 35% for July. In the long term, iron ore prices would also be fixed in a similar manner.
reported that Vale already has fixed prices for the third quarter which would be an average of spot prices in China from March to May. Offered a choice, consumers can choose between an index or a composition of indices (Platts, The Steel Index, or Metal Bulletin Iron Ore Index) that they prefer to use.
Vale CEO Roger Agnelli said his company isn't "fixing prices: who is fixing the prices is the market." He added that the supply-demand fundamentals of the metal influence the price movements.
Steelmakers and Chinese officials allege that the global iron ore market is largely concentrated among the three major producers -- Vale,
-- and due to the nature of the iron ore industry a high threat of cartel formation is prevalent.
Chinese steelmakers were forced to adopt a volatile new index-based quarterly pricing system, which was developed after the earlier 40-year-old traditional benchmark system was undermined due to a dynamic market. However, Vale is concerned that if China defaults on its quarterly contracts, spot prices would fall below the agreed price.
Meanwhile, Vale announced its decision to acquire the remaining 24.5% stake in
, valued at $900 million, to gain 100% ownership of the coal project. The cost of project development is pegged at $2 billion, after which the production will scale up to 7 million metric tonnes (MT) of coking coal a year.
In another announcement, while planning to restore its full capacity of 300 million tons in 2010, Vale estimates iron ore shipments to China to remain at the 2009 level of 140 million tonnes. Further, it expects the market share in China to contract as it plans to expand shipments to other countries.
On Wednesday, Vale shares rose 3.5% to $27.79, Rio Tinto gained 4.4% to $46.71, and BHP Billiton rose 3.6% to $64.90.
According to Metal Bulletin, iron ore prices closed at $149 per dry MT on May 28, declining $1 from the previous day, and $6.50 from the previous week.