UPDATE 1-Vale gets 1st iron ore price deal for 08 in Europe
SAO PAULO, Feb 19 (Reuters) - Brazilian mining giant Vale (VALE5.SA: Quote, Profile, Research) reached its first iron ore price deal for 2008 in Europe with German steelmaker ThyssenKrupp (TKAG.DE: Quote, Profile, Research), which managed to secure a smaller price increase for high-quality ore than Japanese and South Korean steel mills.
Vale (RIO.N: Quote, Profile, Research) said in a statement late Monday that ThyssenKrupp would pay 65 percent more in the year starting April 1 for iron ore from its southern mines system, matching the increase agreed to with Japanese and South Korean steelmakers.
But the price ThyssenKrupp pays for better-quality ore from Vale's massive Carajas mine in the Amazon will jump 66 percent, less than the 71 percent increase agreed to with the Asian steel producers.
Under a long-standing practice between the world's top mining companies and steelmakers, the first companies to agree on prices usually set the benchmark for the rest of the industry. That means Vale is likely to secure similar price increases from other European mills.
This year's price increase -- which was larger than expected -- is the sixth in a row, driven by red-hot global demand for raw materials, especially in China. Iron ore is the main ingredient in steel.
Vale, the world's leading producer of iron ore, has been aggressively branching out into other metals in recent years. It is currently in talks to buy Swiss rival Xstrata (XTA.L: Quote, Profile, Research).
Vale's shares were up 1.51 percent at 49.59 reais in early trading on Tuesday, outpacing a 1.11 percent gain by the broader market. On Monday, Vale's shares surged 5 percent after it reached the price agreement with the South Korean and Japanese steelmakers. (Reporting by Todd Benson; Editing by John Picinich)