BHP Billiton will come under pressure this week to reveal what portion of its Pilbara iron ore production has been sold into the less-lucrative spot market.
Having admitted last month that some of its long-term customers had asked for shipment deferrals, BHP refused to indicate the resultant portion of Pilbara production that had been sold into the spot market, and at what discount to the prevailing benchmark price.
Unlike Rio Tinto, which decided to cut production by 10 per cent to match the lower demand, BHP has stuck to its output targets but has been forced to rely on the spot market for some of its cargoes.
Analysts will be dissecting BHP’s half-year profit report, due to be released on Wednesday, to work out how hard the miner has been hit by the downturn in global demand for the steel-making commodity.
BHP’s junior peers, led by Fortescue Metals Group and Atlas Iron, will also be anxiously awaiting details of the market leader’s iron ore performance and outlook guidance.
Fortescue admitted on Friday it had agreed to customers’ demands for unspecified price discounts in order to offload its iron ore, reducing the actual sales price in the December half to $92.31/t of ore shipped, including free-on-board (FOB) and delivered cargoes.
Atlas, meanwhile, sold its maiden shipment for only $57/t, although that included the FOB discount of at least $30/t compared to delivered benchmark prices.
Territory Resources, which ships out of Darwin, booked $40.2 million of revenue from sales and debtors in the quarter, suggesting an average per-tonne sales price of $96.30.
The Pilbara benchmark price for deliveries is $US144.66 ($225.15/t) per tonne of pure iron. BHP and Rio, the highest-grade producers in the Pilbara, usually average around 60 per cent iron content, or an effective price of $135 per delivered tonne of ore.
This year’s benchmark price is set to fall sharply, with analysts tipping a drop of between 20 per cent and 40 per cent, or down to about $US87/t. The relatively weak Australian dollar should offset some of the fall.
Fortescue said more price adjustment was likely in anticipation of a lower 2009 Pilbara benchmark, and pointed to spot prices 20 per cent to 25 per cent below the benchmark.
But Fortescue also flagged that spot prices were on the rise, a welcome sign for an embattled industry hoping that BHP reports the same trend.
BHP chief executive Marius Kloppers is also expected to be quizzed again about the miner’s sudden decision last month to axe the loss-making $2.2 billion Ravensthorpe nickel mine.
BHP has said it does not expect to reopen Ravensthorpe. Mr Kloppers is likely to be asked about future plans for the site, and whether it will be sold for scrap metal like the failed Boodarie HBI plant at Port Hedland.
From: The West Australian
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