Sidor, Chavez and a political tug of war over the price of iron ore

Nov 04, 2005 | 05:14 AM | Diana Kinch

Venezuelan steelmaker Siderurgica del Orinoco CA (Sidor) has agreed to essentially double what it pays for iron ore from state-owned producer CVG Ferrominera Orinoco CA (FMO), ending a clash that included threats by Venezuelan President Hugo Chavez to re-nationalize Sidor should it refuse to pay international prices.

The steelmaker will pay 90 percent of the prevailing global price for iron ore, up from the 44 percent it paid under a 20-year contract signed by Sidor and FMO following Sidor's privatization in the late 1990s.

The new pricing also will apply to iron ore sold to Venezuela's hot-briquetted iron (HBI) plants. The change is expected to generate a 40-percent increase in HBI production costs, which currently average $120 a tonne in the Puerto Ordaz area, according to Materiales Siderurgicos SA (Matesi), the former 1.5-million-tonne-per-year Posven HBI plant. In turn, this could lead to the re-negotiation of international HBI sales contracts, according to producer sources.....