80% increase in iron ore price on the way?, page-3

Took this off the FMG thread.................

good read below from "TheAge" online today.


55% price rise a steal for BHP

March 8, 2010

BHP Billiton has won a 55 per cent price increase from a key Japanese steel maker as supplies of coking coal tighten with the global economic recovery.

JFE Holdings will pay US$200 ($A220.25) a metric tonne for a three-month contract starting in April, according to Eiji Okumura, a spokesman for the Tokyo-based steel maker. That compares with US$129 a tonne for the year ending March 31, which was agreed on by Japanese steel makers and BHP in 2009. BHP was seeking US$240 this year. The company declined to comment.

It is the first time a three-month supply accord for the steel-making ingredient has been signed, said Jim Lennon, a commodities analyst at Macquarie Group. BHP has proposed Asian mills accept quarterly iron ore supply accords instead of the customary year-long contracts.

The JFE coal settlement "signals that the Japanese are moving towards the idea of flexibility of pricing," Mr Lennon said.

The terms of JFE and BHP's contract, due to start in July, have yet to be decided, Mr Okumura said.

Global financial services firm UBS said BHP has offered customers three options for coking-coal contracts. The first is for half of the supplies to be priced annually and half quarterly; the second option is for supplies to be divided between quarterly and semi-annual contracts; the third is for all prices to be set every quarter.

Coking coal and iron ore suppliers have in previous years held annual talks with steel makers to fix benchmark contract prices for the year from April 1, which is the start of the Japanese financial year.

The four-decade-old iron ore pricing system was fractured last year after Chinese mills failed to reach agreement with suppliers.

China is the largest importer of iron ore. Some Asian steel makers will struggle to pass on higher costs.

BHP, Teck Resources, Xstrata, Rio Tinto, Alpha Natural Resources, and Massey Energy are among the mining companies that are expected to benefit from more frequent pricing.

Chinese mills increased iron ore purchases to a record last year to meet rising steel demand fuelled by the nation's stimulus spending. Chinese coking-coal imports rose 10-fold in 2009.

Annual iron ore contract prices may soar 60 per cent in 2010 as demand from steel makers increased with the global economic recovery, Morgan Stanley said this month.

The daily cash price for iron ore rose to the highest in more than a year last week. BHP boosted sales of iron ore based on "shorter-term reference pricing," in the fiscal first half to 46 per cent, from 30 per cent, it said in January.