China Agrees to Vale's Iron Ore Price

China's Baosteel Group Corp. said Friday it has agreed to a 65 percent hike in iron ore prices for fiscal 2008 with Brazilian miner Companhia Vale do Rio Doce SA.

The deal came after steel producers in Japan, South Korea and Europe had agreed to the same price increase with Vale on Monday. The new prices will take effect April 1, Baosteel said in a statement.

Baosteel Group, China's biggest steel producer by output, represents major Chinese steel mills in talks with Vale, BHP Billiton Ltd. and Rio Tinto PLC every year.

Brazil's Vale miner, the world's biggest iron ore producer, said Monday that it had reached agreement on the new price with South Korean steelmaker Posco and with Japan's Kobe Steel, JFE Steel Corp., Nippon Steel, Nisshin Steel and Sumitomo Metals.

It was the first price agreement between a major ore producer and big steelmakers, a move that typically sets the benchmark price for the industry.

Vale said in a statement Monday that prices for iron ore fines produced at its Southern System mines would rise 65 percent. It said the price for high-quality ore from its Carajas mine in Brazil's Amazon will increase about 71 percent.

After Vales' announcement, other key producers such as Rio Tinto and BHP Billiton and Chinese steel mills led by Baosteel Corp. were expected to announce deals in line with the new price within days, analysts said.

Increasing demand from China's booming steel sector has driven significant hikes in iron ore prices in annual negotiations for the past six years, boosting miners' profits and sparking a drive to bring new production into the market.

Despite the sixth consecutive increase in annual prices, the 2008 deals so far have been broadly in line with market expectations.