BHP BILLITON is expected to conclude its iron ore price negotiations in the next few days with an agreement that more or less matches the average 85% price increase its takeover target, Rio Tinto, secured for Pilbara iron ore exports in 2008-09.
Rio won the bumper annual increase ¡ª in US dollars ¡ª last week with China's Baosteel and announced yesterday it had reached a similar agreement with all its Asian customers for the price increase, which applies for contract sales backdated to April 1 (Japanese fiscal year).
The price rise means that the annual value of Australia's iron ore exports will surge to more than $35 billion, up from $20 billion in the previous Japanese fiscal year. Ordinarily that would have made iron ore the top export earner.
But the tripling in contract prices for coking coal ¡ª another steel-making raw material ¡ª to $US300 ($A314) a tonne means that coking exports will take out the No. 1 position with a forecast $39 billion in exports in the new Japanese fiscal year.
Rio said the settlement with all its other Asian customers was in line with the Baosteel settlement for an increase in lump prices by 96.5% and an increase for iron ore fines of 79.88%. The price increase comes as analysts predict that another 15%-30% price increase next year is possible.
Rio's average or blended 85% increase was a bigger increase than was secured in February by the world's biggest iron ore exporter, Vale. Vale secured a 71% increase for its premium Carajas fines product and a 65% increase for its Itabira fines.
On a like-for-like basis, the respective settlements meant that Rio secured an additional $US7.45 a tonne on top of the $US65 a tonne that Vale will be receiving for its fines in China. The premium is a part recoupment of the freight differential between iron ore from the Pilbara ¡ª which is closer to Asian markets ¡ª and iron ore from Brazil.
Earlier this year, the freight differential or additional freight cost of Brazilian supplies blew out to as much as $US45 a tonne because of soaring day rates for the world's bulk carrier ships. Both Rio and BHP are expected to claw back more of that differential in years to come.
BHP is wrapping up its iron ore price negotiations and despite some belief that it has been holding out for an even higher price, it is expected to confirm in the next two days it has settled for a price increase in line with the Rio settlement. BHP managing director Marius Kloppers has said BHP is a price taker and would remain so if it were to be successful in its takeover bid for Rio.
Some iron ore customers have other ideas and have been vocal in their opposition to the bid, which remains subject to antitrust clearance from the European Commission.
The reporter owns BHP shares.
KEY POINTS ¡ö Annual value of Australia's iron ore exports likely to surge to more than $35 billion. ¡ö Rio Tinto secured average 85% price increase for Pilbara iron ore in 2008-09.
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