The focus in annual iron ore
price talks shifted on Tuesday to whether BHP Billiton
(BHP.AX)(BLT.L) would convince Chinese steelmakers to pay more
than the record settlement reached with Australian rival Rio
Tinto (RIO.AX)(RIO.L) a day earlier.
Rio's near doubling in term prices increases eclipses the
65 to 71 percent that Asian mills and Brazilian miner Vale
()(RIO.N) clinched in February, but BHP, the only major
producer still in talks, hinted that it may still not be
enough.
The two miners typically follow the first settlement
reached, but the stakes have been upped this year as the value
they can squeeze out of their iron ore assets is seen as a key
factor in the $167 billion BHP bid for Rio.
The head of BHP's ferrous and coal business, Marcus
Randolph, said on Tuesday that Rio had failed to achieve an
adequate freight premium in its deal with Baosteel. It costs
$55-$60 per tonne less to ship ore from Australia than from
Brazil, he said.
BHP also raised the reserves at its biggest Western
Australia Iron Ore operation by 23 percent, and said the iron
ore division would triple its capacity between 2007 and 2015.
"This is an indication of the future potential of these
assets," Randolph said.
The stakes are also high for steelmakers like Baosteel
(600019.SS), which settled on Monday with Rio and saw its share
price slide 8 percent on Tuesday on worries about higher costs.
A failure by Baosteel to reach a settlement with BHP in a
meeting on Tuesday morning puts Asian steelmakers at risk of
further hikes.
Steelmakers in South Korea and Taiwan are waiting for
Japanese mills to reach a deal with Australian miners, but can
continue to pay last year's prices through September.
Other Asian steelmakers' shares were also lower, with South
Korea's Posco (005490.KS), the world's No. 4 steelmaker, down
1.9 percent despite an announcement that it would raise steel
prices by 21 percent in July.
MINERS BREAK RANKS
This year is the first time that miners have not all
accepted the same percentage change in iron ore prices, opening
the door to further differentials by quality and region.
"The benchmark pricing has system has now increased in
complexity. There is now a benchmark for each product," said an
industry executive.
That could change the tenor of annual term price
negotiations, in which traditionally all mills and miners
accept whatever settlement is reached first.
The annual pricing system has proven too inflexible as
rapidly expanding Chinese steel capacity caused spot iron ore
prices and freight rates to balloon over the last few years.
BHP and Rio have called for annual price talks to be
replaced by a more flexible index pricing system. They also
want higher prices to offset the lower cost of shipping ore
from Australia, compared with Brazil.
Rio and BHP shares both rose 3 percent in Australian
trading, with Rio turning in a marginally stronger performance.
The Chinese industry would have had to begin paying much
higher spot rates for iron ore from Rio Tinto had it failed to
reach a settlement by June 30.
While the Vale deal differentiated the price rise based on
the iron content of the ore, the Rio deal establishes a premium
for lump ore which moves it closer to pellet prices. Lumps and
pellets can be directly used in blast furnaces.
Baosteel agreed to a 79.88 percent price rise for Rio
Tinto's Pilbara blend fines and Yandicoogina fines, and a 96.5
percent price rise for Pilbara blend lump for the fiscal year
2008.
No price has yet been announced for Rio Tinto's lower
quality Robe ore.
For a graphic of Asian iron ore prices, click on:
https://customers.reuters.com/d/graphics/CN_IRNOR10608.gif
($1=6.874 Yuan)
(Additional reporting by Miyoung Kim in Seoul, Yuko Inoue
in Tokyo, Lee Chyen Yee in Taipei and Alfred Cang in Shanghai)
Related posts: