BHP Billiton Ltd., the world's largest mining company, said higher iron-ore prices agreed to by Rio Tinto Group are too small to cover extra shipping costs.
Rio said yesterday it agreed to increase iron-ore contract prices with Baosteel Steel Corp., China's largest steelmaker, by 80 to 97 percent. It's the first time Chinese buyers have agreed to pay more for Australian ore than supplies from Brazil, which are costlier to ship. Melbourne-based BHP, which is making a hostile $172 billion bid for Rio, hasn't agreed to new prices.
``We are delighted to see that progress,'' Marcus Randolph, chief executive officer of the ferrous and coal units of BHP, said today at a presentation in London. ``It doesn't cover the full $40-50 difference on freight.''
The cost of shipping a metric ton of iron from Australia to China is $53 less than importing the raw material from Brazil, Deutsche Bank AG analyst Rob Clifford said today in a note.
BHP rose 3 pence, or 0.2 percent, to close at 1,911 pence on the London Stock Exchange. Rio increased 36 pence, or 0.6 percent, to 6,010 pence.
Yesterday's announcement by Rio was also a break from the pattern of price settlements in previous years which led to a so-called single benchmark price increase or cut. Brazil's Cia. Vale do Rio Doce, the world's largest iron-ore producer, said in February it won annual increases of 65 percent and 71 percent.
``Normally BHP and Rio would follow Vale's agreement,'' Stephen Pope, chief global market strategist at Cantor Fitzgerald Europe, said today in a Bloomberg Television interview in London. The size of Rio's price gain is ``about right,'' Pope said.
BHP will seek ``greater transparency'' in iron ore pricing and won't sign contracts based on benchmark terms to replace contracts that expire, Chief Executive Officer Marius Kloppers said at the presentation. The company plans to sign more contracts linked to spot prices or pricing indexes.
``We have undertaken that we will not sign any new contracts as they expire, which will take some years,'' Kloppers said. ``We will sign new contracts on new transparent market terms.''
``The annual iron ore benchmark contract pricing system may now be broken forever,'' Christopher LaFemina, a London-based analyst at Lehman Brothers Holdings Inc., said yesterday in a note.
Posco, Asia's third-biggest steelmaker, will probably accept the gain as a benchmark, Ko Min Jin, a spokeswoman for the Pohang, South Korea-based company, said today by phone. Japanese steel mills will agree to the same price increase, the Nikkei newspaper said today.
BHP, which held the presentation to brief investors, analysts and reporters on its production of steelmaking raw materials, also said it increased its Western Australian iron- ore resources by 3.7 billion wet metric tons to 11.7 billion tons.
``A 46 percent increase in resources is an indication of the future potential of these assets,'' Randolph said in an earlier conference call in London. Pre-feasibility studies were underway to expand Pilbara capacity to 300 million tons by 2015, Randolph said.
BHP approved $100 million in funding for the first stage of a new coking coal deposit in Indonesia that is expected to produce 1 million tons a year after beginning production next year. A study is being completed to expand that to as much as 5 million tons, BHP said in the presentation.
The company also raised the manganese resources at the Samancor unit and its Samarco joint venture. Manganese is a steelmaking raw material.
Source: Bloomberg
No comments:
Post a Comment