Baosteel shakes hands with BHP over iron ore

By Fu Chenghao  |   2008-7-5  |     NEWSPAPER EDITION

BAOSTEEL Group Corp has reached an agreement with miner BHP Billiton after protracted negotiations on contract prices for 2008-09 iron ore deliveries.

The agreed price represents the same increases it settled with Rio Tinto last month.

The price for BHP's Yandi and Newman "fine" iron ores rose 79.88 percent to 144.66 US cents per dry metric ton unit and its Newman "lump" ore price increased 96.5 percent to 201.69 US cents per dry metric ton unit, effective from April 1, the companies said yesterday.

Industry analysts had expected BHP to agree to the same terms as Rio, as both ship ore from Australia.

Shanghai-based Baosteel negotiated the prices on behalf of Chinese mills which mainly use "fine" ores.

The settlement marks the conclusion of this year's ore price negotiations between Baosteel and the world's top three miners. Brazil's Vale agreed to a rise of 65 to 71 percent with China and other Asian miners in February.

BHP and Rio had been demanding a bigger increase than Vale to reflect the lower shipping costs from Australia to Asia than from Brazil.

After Rio wrapped up its talks with China last month, BHP said its rival's price increases still did not cover the difference in the shipping costs between Australia-China and Brazil-China.

Rejected

BHP had proposed to link its prices to spot prices or a pricing index, a move which has been firmly rejected by Chinese industry authorities.

"At the end of what has been a long process, we believe our relationship with our customers remains as positive and strong as ever," Marcus Randolph, chief executive of BHP's ferrous and coal operations, said in a statement.

BHP said it would now seek to settle agreements with its other customers under existing long-term supply agreements in China and other countries.

The contract ore prices have risen for six consecutive years, putting great pressure on mills and pushing up steel prices.