July 03, 2008
BHP Billiton to Settle Iron Ore Contracts
BHP Billiton, the mining company, is on Thursday expected to agree a record increase in the price of iron ore supplies to its largest Chinese customers, in line with a settlement negotiated last week by rival Rio Tinto.
Traders and analysts had first bet, encouraged by comments from senior BHP executives, that the miner would push for a larger price increase than Rio’s 79-96 per cent. Some traders suggested a 100 per cent price increase was on the cards for the ore, a key raw material of steel.
A person close to the negotiations confirmed on Thursday that there would be “no material difference” between BHP’s price settlement and that secured by Rio.
Vale of Brazil, the world’s largest producer of iron ore, agreed to a 65 to 71 per cent price increase in February. But Rio and BHP decided to hold out for more, arguing that Asian steelmakers should pay more for their Australian ore than Vale’s Brazilian ore as the freight costs are lower.
BHP is the third-largest producer of iron ore, after Vale and Rio. Steel companies are lobbying antitrust regulators around the world to block the proposed deal on competition grounds, saying it would give the combined company too much pricing power in the ore market.
Analysts expect the market will remain tight in 2009, opening the door for further price increases, despite the construction of a number of new mines. “We expect tightness in?.?.?.?the global iron ore market to continue,” said Robert Clifford, of Deutsche Bank, who forecast a price increase of almost 20 per cent next year.
At 174 days, Rio’s negotiations with its ore customers this year were the longest ever, running past the April 1 start date for the supply contracts and well beyond the average 32 days of talks of the last 25 years, according to Macquarie.
By Rebecca Bream and Javier Blas