Bloomberg has reported that Nippon Steel and Vale, SA ( VALE) have reached a tentative agreement in iron ore price discussions.

The reported agreement is "about" $105 per ton for the April-to-June quarter. The price would be a 90% increase from fiscal 2009. Bloomberg also reported that Korean steelmaker Posco has also provisionally agreed to the same price increase.

We believe that higher iron ore prices are bullish for the domestic steelmakers and ArcelorMittal ( MT) due to the fact that these lower-cost players are either more integrated than their global peers -- or have access to local ore bodies or scrap at a lower cost -- so that the higher global iron ore prices go, the more competitive advantage the domestic players have.

It is not surprising to us that we are seeing Japanese and Korean steel companies settle ahead of China, as this has been the pattern the past few years.

We also anticipate that Chinese iron ore prices will settle at least as high, if not higher than other Asian players. We continue to believe that China's main assertion -- that as the largest buyer of iron ore, it should be paying a lower price - is flawed.

In our view, China should be looking at their market position in the opposite way -- meaning as the largest buyer, they have to pay a premium to get "size" tonnage. We also believe that due to the increased risk of doing business in China -- clearly displayed in both the Rio Tinto ( RTP) and Google ( GOOG) situations -- should be reflected in a premium price.
Michelle Galanter Applebaum spent more than 20 years as a managing director at Salomon Brothers in New York and was the No. 1-rated steel analyst from 1988-2003, according to Institutional Investor magazine. In 2003, Ms. Applebaum formed Steel Market Intelligence, a 5-person Chicago-based equity research boutique providing advisory services to institutional investors. In addition to publishing 10-15 reports/week, Ms. Applebaum sponsors numerous CEO-level meetings for her investor clients during the year. She is regularly quoted on Bloomberg, Dow Jones, The New York Times and makes frequent appearances on CNBC and other news programs. Ms. Applebaum lives near Chicago with her husband, visiting children and 2 dogs.