CVRD and Arcelor Agree To Boost in Iron Ore Price

In a deal that signals iron ore prices may be higher than some had expected this year, the world's biggest iron ore exporter and the world's biggest steelmaker have agreed to an 18.6 percent price hike for 2004.

Brazil's Companhia Vale do Rio Doce SA said steelmaker Arcelor has agreed to pay prices in 2004 that are 18.6 percent higher than last year for fines from its Carajas mines in northern Brazil shipped freight-on-board from the port of Ponto de Madeira.

The deal with Arcelor, the first to be closed by CVRD, is likely to serve as a benchmark for talks with other ore buyers in Europe and Asia. CVRD sells about a third of its output in Europe, a third in Asia and another third at home. Smaller amounts of ore and pellets are shipped to other parts of the world.

The price increase, due to a weaker dollar and booming international demand for iron ore, was a few percentage points bigger than most analysts had expected. Most analysts had been expecting iron ore prices to jump about 15% this year after rising 9 percent on average in 2003.

CVRD, which produced a total of about 170 million tons of iron ore last year, aims to boost output at its Carajas mine to 70 million annual tons over this year from 56 million tons at present.

The company, which is investing aggressively to expand infrastructure and lift output in order to take advantage of surging demand, expects production at Carajas to reach 85 million annual tons by early 2006.

The European steel giant and CVRD together own Brazilian steel slab exporter Companhia Siderurgica de Tubarao. Arcelor also controls Brazil's biggest stainless steel maker, Acesita SA. Dow Jones