china bends to bhp

News is coming....should be interesting the week or "s" ahead.... :)

China bends to BHP, Rio demands

April 26, 2008 08:13am

THE Chinese steel industry has indicated it will concede to BHP Billiton and Rio Tinto's demands for a price premium on Australian iron ore.

The mining giants want their supply contracts with Chinese steel mills to reflect the cheaper cost of shipping iron ore from Australia compared with the world's other big producer, Brazil.

Mr Zou Jian, chairman of the China Metallurgical Mining Association, said he was confident that the annual iron ore contract negotiations would be settled by the June 30 deadline.

Mr Zou suggested the Chinese steel industry would consider paying a freight differential for Australian iron ore based on long-term rates of $10.75 to $21.50.

However, Chinese steel mills would not accept a freight rate based on spot shipping markets between the two routes, which is now around $43.

It costs a Chinese steel mill around $29.01 to ship a tonne of iron ore from Australia - as against $68.76 from Brazil.

Brazil's Vale, the world's biggest iron ore producer, has already negotiated a 65 to 71 per cent price increase with Baosteel, China's largest steel-maker, in this year's talks.

But BHP and Rio are pushing for an even higher price from their Chinese customers, threatening to scrap their contracts and sell all their iron ore on the more lucrative spot market if an agreement cannot be reached.

The spot price for iron ore has traded around the $US200 a tonne mark so far this year, giving BHP and Rio extra leverage to ram through their proposed reforms to the benchmark pricing system.

The two miners have stood shoulder to shoulder on the issue, even though BHP has lobbed a $180 billion hostile bid at Rio.

Mr Zou said the Chinese steel industry might refuse to buy Australian iron ore if BHP and Rio insist on scrapping the long-term contract system.

But he added it would be hard to unite all Chinese steel mills in a boycott as the sector was so fragmented.

If and when BHP and Rio strike a deal with their Chinese customers, the price increase will be backdated to April 1.

Mr Zou made the comments while speaking to Steel Business Briefing on the sidelines of an iron ore conference in Shanghai.