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BHP, Rio Remind China Mills Of Spot Iron Price Clause -Indus

SHANGHAI (Dow Jones)--Australian iron ore miners have reminded Chinese steel mills of a
contract clause that could increase mills' raw material costs significantly, if
tense negotiations can't be settled by June 30, industry participants said Monday.
BHP Billiton Ltd. (BHP) and Rio Tinto PLC (RTP) have told major Chinese steel producers
they may invoke the clause, which would base ore prices on spot market values, in the
hope of concluding prolonged talks before that date, an official with the China Iron
& Steel Association said.
"But I don't think this will happen - it hurts both sides," said the
official, who declined to be named.
Industry participants said that long-term contracts signed between Chinese steel
producers, including Baosteel Group Corp., and the Australian miners, include a clause
that allows miners to sell at least part of contracted ore supplies at spot rates, if new
contract prices aren't settled before June 30.
BHP Billiton declined to comment.
Baosteel Group Corp., the parent of Shanghai-listed Baoshan Iron & Steel Co.
(600019.SH), represented its units and other Chinese mills in agreeing to annual contract
prices with Brazilian miner Companhia Vale Do Rio Doce (RIO) for 2008 that are 65% and
71% higher than 2007 prices, depending on ore quality.
BHP Billiton and Rio Tinto are seeking a price hike of more than 80%, which factors in
a "freight premium," according to market participants.
In the past, after one of the three miners reached an agreement with any steel mill
worldwide, the other two quickly settled prices in line with the benchmark price change,
which takes effect April 1. The annual negotiations are usually settled before that date;
if they are delayed but concluded before June 30, steel mills pay miners the new prices
retroactively.
"I don't think Chinese steel mills will bring the talks into July - no one
wants to pay the much higher spot prices. It should be finished in May or June,"
said an analyst at a steel research institute in Shanghai.
The analyst said the current spot price for Australian ores are about 45% higher than
the contract price with an 80% premium factored in.
China, the world's biggest iron ore consumer, sourced 38% of its total 383.09
million metric tons of imports from Australia in 2007.

-Helen Sun in Shanghai and Alex Wilson in Melbourne contributed to this article; Dow
Jones Newswires; (86-21) 6120-1200; [email protected]