BHP Billiton Ltd., the world’s largest mining company, said it will begin talks next month with Asian steelmakers for 2010 contract iron ore prices, even before they settle this year’s prices with Chinese mills.
“We are still negotiating, still discussing and we will update the market when we have something” on talks with some Chinese mills for the year that began April 1, Tom Schutte, president of marketing at Melbourne-based BHP, told reporters today at a briefing in Sydney. BHP will begin negotiations for next year’s price in October, he said.
Contract prices for iron ore, BHP’s biggest earner, may rise 20 percent next year, UBS said on Sept. 2, reversing a previous estimate for a 33 percent decline. BHP wants to sell iron ore on shorter-term pricing contracts rather than the current annual system and has agreed to sell 30 percent of its iron ore under new pricing mechanisms.
“BHP no doubt would like to see the market be more dynamic and, importantly, more transparent when it comes to pricing, thus avoiding the likelihood of pricing impasses that we are currently in the midst of,” said Tim Schroeders, who helps manage about $1 billion at Pengana Capital Ltd. in Melbourne.
BHP rose 2 percent to A$39 at the 4:10 p.m. Sydney time close on the Australian stock exchange. The cash price for Australian ore delivered to China, the world’s biggest buyer has risen 15 percent this year.
Rio Tinto Group, the world’s second-largest exporter of iron ore, said on Sept. 4 it was shipping the steelmaking ingredient to China based on the 33 percent discount agreed with Japanese, South Korean and Taiwanese mills. Chinese producers want a 35 percent reduction.
The transfer to the new pricing system will take some time, Schutte said today.
BHP has renegotiated some of coking coal contracts on shorter-term pricing agreements, he said. Floating price mechanisms, rather than long-term pricing contracts, more accurately reflect the supply and demand of commodities, he said.
China imported 3.7 million tons of coking coal from Australian in July and it may import a total of 30 million tons globally this year, Schutte said. That would account for 67 percent of its consumption, he said.
BHP has undertaken five expansions of its Western Australia iron ore operations since 2001 taking capacity to 129 million tons from 69 million tons, on a 100 percent basis. It is now working to expand to 205 million tons and is studying a further expansion to 300 million tons by 2015.
BHP and Rio are seeking approval for the proposed combination of their iron ore operations in Western Australia’s Pilbara region.
Source: Bloomberg
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