CMRG iron ore discounts: we estimate near US$10bn of value leakage over 10 years

Goldman Sachs estimates that long-term contract agreements between CMRG and the listed iron ore miners (BHP, RIO, AAL and FMG) could cost US$1-1.1bn per annum in EBITDA, or US$8-9bn over the next decade on a US$85-95/t 61% Fe IODEX basis. Miners are understood to have accepted agent fees of 1.6%-1.8%, though all-in effective discounts are estimated closer to 2%-3% once volume and freight rebates are included: BHP at 2.7%, AAL (Kumba) at 2.3% and RIO at 2.1%, with FMG yet to settle and assumed at 3.0%. Lower-grade, non-index-setting tonnes have also been targeted for deeper discounts and, in some cases, restrictions and bans. The near-term earnings impact is modest at roughly 1% of BHP/RIO EBITDA, but the precedent set by this negotiation cycle, and its potential read-across to commodity procurement beyond iron ore, is the more important consideration.