Fortescue Metals has settled iron ore contracts with Chinese steel mills for the second half of 2009 below the benchmark set by its rivals.

The agreed price, at $0.94 per dry metric tonne unit (dmtu), is at 3% below the price agreed by its Australian competitors with non-Chinese firms earlier this year, Fortescue said.

The company has signed agreements with Baosteel Group and the China Iron and Steel Association (CISA) to supply about 20 million wet metric tonnes during the six-month period.

Fortescue’s rocket fines will cost $0.94 dmtu, equal to $55.50 per dry tonne for grade iron ore, while the high grade lump would cost $1 per dmtu, Fortescue said.

CISA has also guaranteed that it will give priority to Fortescue if it conducts annual iron ore pricing negotiations in 2010.

The agreement breaks the market impasse which has enveloped the Chinese iron ore industry in uncertainty and added risk for the past year, Fortescue CEO Andrew Forrest said.

“The ongoing market speculation has promoted unprecedented iron ore and steel price volatility, which in turn has created extreme production uncertainties for Chinese steel mills and for suppliers,” Forrest said.

“This agreement eliminates that price uncertainty, sets a solid platform for Fortescue to deliver increased product into China and affirms our close working relationship with CISA and all Chinese steel mills.”