an update to the last...

an update to the last one.

http://www.bloomberg.com/apps/news?pid=20601081&sid=aKNhMY5s8Eb0

BHP Says Iron Ore Spot Surge Points to Contract Level (Update1)
Email | Print | A A A By Wendy Pugh

Feb. 14 (Bloomberg) -- BHP Billiton Ltd., the worlds largest mining company, said spot iron ore prices are about double year-ago benchmark values, pointing to the level of increase required for 2010 contracts.

The market price is what the benchmark price is supposed to be, BHP Chief Executive Officer Marius Kloppers said on Australian Broadcasting Corp.s Inside Business program. I dont know what the price settlement will be when we get to that point. What I do know is that todays price is almost double what last years benchmark -- which was set in the depths of the financial crisis -- was, he said.

Talks to set 2010 prices have begun between mills and suppliers including BHP and Rio Tinto Group, the China Iron & Steel Association said last week. Analysts including Nomura Holdings Inc. and Bank of America have forecast producers, which are aiming to reduce reliance on the benchmark system, may win increases in annual negotiations of as much as 50 percent.

The only way to avoid the friction of a benchmark price negotiation that goes on for six months is to have something which is very clear and you can observe it every day, Kloppers said.

BHP and some Chinese steelmakers have agreed to a provisional 40 percent increase in contract iron-ore prices, UC361.com analyst Hu Kai said last week, citing the mills.

Samantha Evans, spokeswoman for Melbourne-based BHP Billiton, declined to comment when contacted by Bloomberg News on Feb. 12.

Contract Prices

A 40 percent gain in contract prices would see the price of Australian ore rise to about $84 a metric ton, from about $60 a ton. The cash price, including freight and insurance, was at $128.20 on Feb. 12, according to The Steel Index.

Steel prices have lagged behind the gains in spot iron ore values, said Mark Pervan, senior commodity strategist at Australia & New Zealand Banking Group Ltd. He forecast a 40 percent gain with upside risk.

Steel prices havent been as buoyant as the spot iron ore market, he said by phone today. You have to take both into account.

Smaller mills are typically more active in the spot market, compared with the larger companies that sign annual contracts with producers such as BHP and Rio Tinto, he said.

BHP Billiton will increase capital spending 63 percent next year to meet surging demand in China and India, the company said in a results presentation on Feb. 10. The commodities producer also has the capacity to make opportunistic acquisitions, Kloppers said Feb. 10.

Capital Spending

Capital spending on projects including iron ore mines and oil fields will rise to $20.8 billion from $12.8 billion this year, the Melbourne-based company said after reporting that first-half net income more than doubled.

Net income was $6.1 billion, or 109.8 cents a share, in the six months ended Dec. 31, from $2.6 billion, or 47 cents a share, a year earlier, BHP said. That compared with the $5.5 billion median estimate of eight analysts.

Economic growth in China, the worlds largest consumer of industrial metals, accelerated to a 10.7 percent year-on-year pace in the last three months of 2009.

The trend of rising steel production in China was forecast to continue even after its rapid expansion, Kloppers said today.

We did a bottom-up analysis, how many buildings, what is the steel intensity and so on and we think that this trend is going to go on for the 20 years that weve forecast, he said.

To contact the reporter on this story: Wendy Pugh in Melbourne [email protected].

Last Updated: February 13, 2010 20:54 EST