Platts reported that Rio Tinto has continued to sell substantial volumes of iron ore on the spot market and that its bottom line could be hit by ongoing price negotiations with its Chinese customers.

The company said that during the first 5 months of 2009, approximately half its iron ore production was sold on a spot market basis.

It said that in a filing with the Australian Securities Exchange related to Rio's USD 15.2 billion rights offering iron ore contract negotiations are ongoing with other customers, including the group's Chinese customers. The outcome of these negotiations is uncertain and could have a material impact on the group's profitability during the 2009/2010 contract period. In addition, the group expects to continue to sell a significant portion of its iron ore on the spot market at least until the group has settled the benchmark prices.

Rio, which said that it was the second largest iron ore producer on a global basis in 2008, added that there "remains some uncertainty in the pricing of spot iron ore despite settlements reached with Asian customers other than the Chinese. The company has thus far settled with Japanese, Korean and Taiwanese customers on prices for its Pilbara Blend Fines, down 33% from 2008 levels and its Pilbara Blend Lump, down 44% from 2008 levels. The Chinese have been pushing for up to a 40% reduction in the fines price.

Rio reiterated 2009 global iron ore production guidance of 200 million tonnes and said the forecast is based on an expected recovery in Chinese steel demand in the H2 of 2009.

(Sourced from Platts.com