bhp follows rio on iron ore settlements, page-3

Hi Brian,

i think we will see a surge later on....let the investors digest it ..... next hour could get interesting ;)

I reckon Monday here in OZ land will be a nicely one ;)

BHP Wins Up to 97% Gain in Ore Prices From Baosteel (Update2)



July 4 (Bloomberg) -- BHP Billiton Ltd., the world's third- biggest iron ore exporter, won a price increase of as much as 97 percent from Baosteel Group Corp., matching the agreement reached by Rio Tinto Group.

Baosteel, China's biggest steelmaker, will pay the higher prices in the 12 months started April 1, Melbourne-based BHP said today in a statement. The company was seeking to settle agreements with the rest of its customers in China and other nations.

Iron ore prices have gained almost fourfold since 2001 to a record because of surging demand from China, raising costs for steelmakers and boosting profits of producers. They may gain another 20 percent next year as demand outpaces supply and new projects are delayed, Merrill Lynch & Co. said last month.

``There is no surprise that BHP would accept the same prices Rio has settled, as BHP is the smallest among the three major exporters to China,'' said Luo Wei, Shanghai-based analyst with China International Capital Corp. ``Iron ore prices may hold or only rise slightly next year as steel production slows.''

BHP fell 18 pence, or 1 percent, to 17.31 pounds at 8:50 a.m. in London. They've risen 12 percent this year. The company has made a $157 million hostile takeover offer for Rio, the world's second-largest exporter of iron ore, to gain control of half of the Asian market for the raw material.

BHP's agreement today and London-based Rio's June 23 accord with Baosteel exceeds the 71 percent gain steelmakers gave Brazil's Cia. Vale do Rio Doce, the world's largest supplier of iron ore, in February.

Asian Steelmakers

Rio and BHP want Asian mills to pay more for their Australian ore because it's cheaper to transport the material to their countries than from Brazil. Rio's accord includes a so-called freight premium that is worth $7.50 a ton, BHP said last month.

Rio's accord didn't cover the $40 to $50 a ton difference between the cost of shipping ore from Brazil and Australia to China, BHP said last month. Rio's agreement was progress, though didn't cover the full difference, Marcus Randolph, chief executive officer of the ferrous and coal units of BHP, said June 24.

BHP wants to sign iron ore contracts linked to spot prices or a pricing index, Chief Executive Officer Marius Kloppers said last month. Chinese steelmakers, the world's largest consumers of iron ore, will reject any moves to link contract prices to spot prices, an official said June 25.

Higher prices for iron ore and coking coal have spurred Baosteel, South Korea's Posco and rivals to raise prices for products sold to automakers and builders to pass on costs. Shougang Corp., China's seventh-largest steelmaker by capacity, said July 2 production costs would rise by 2.8 billion yuan ($408 million) this year on higher iron ore prices.

Rising Imports

China buys about 50 percent of BHP's iron ore and about 55 percent of Rio's. The Asian nation may increase imports by 14 percent to 435 million tons this year, the China Metallurgical Mining Enterprise Association said in April.

The spot prices for iron ore imports have gained 57 percent this year to 1,400 yuan a ton at Chinese port of Beilun, reaching high of 1,610 yuan on March 7, according to the Beijing Antaike Information Industry Co.

``The spot prices probably have peaked,'' China International's Luo said. ``Next year, if the gap between spot and contracted prices is closed, the Australians will be probably not be keen to link the long-term contracts to a price index.''

Baosteel will pay 144.66 U.S. cents a dry metric ton unit for Newman and Yandi fines, BHP said. That's up 79.88 percent from a year ago, Newman lump ore will rise to 201.69 U.S. cents a dry metric ton unit, it said.

Fines ore account for 60 percent of global traded iron ore.