More drilling to come??A massive build-up of iron ore stockpiles...

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    More drilling to come??

    A massive build-up of iron ore stockpiles in China that prompted suppliers to defer millions of tonnes in shipments last year is ending, pushing spot prices higher, BHP Billiton Ltd/Plc said on Wednesday.

    Around 68 million tonnes of ore had piled up at Chinese ports by late November with another 125 million tonnes stored at steel mills, according to analysts' estimates.

    The build-up had led BHP, the world's biggest diversified miner, to defer delivery on 6 million tonnes, or around 5 percent of its annual production, which it sold at a discount on the spot market instead, further depressing prices.

    As a result of China's destocking, spot market prices for ore had rebounded to within 10 or 15 percent of last year's contract price, BHP Chief Executive Marius Kloppers said.

    "The destocking is essentially complete," Kloppers said, after BHP reported a 2.2 percent rise in first-half profit to $6.13 billion before writedowns that pared net profit to $2.62 billion.

    Barring a second collapse in demand, the company hopes to keep up production in the second half, Kloppers added.

    Iron ore generated almost a fifth of the company's first half revenue and $4.14 billion in earnings before interest and tax, according to BHP, more than any other division.

    Chinese and Japanese steel mills are locked in talks with top miners Vale, Rio Tinto and BHP to set a next annual benchmark price for supplies, pushing for a cut of around 45 percent, partly based on sharp spot declines in prices late last year.

    Spot iron ore at one point in 2008 sold for up to $197 a tonne, close to double the annual benchmark price that runs until March 31, before recoiling sharply as demand dried up and inventories swelled.

    "We saw the price during the destocking cycle track below the marginal cost of production," Kloppers said. "But with the destocking cycle nearly complete in China, we have seen it trade up to not very far from where it was settled last March."

    Kloppers said he hoped to see BHP's first half production of ore maintained in the second half, totalling 130 million tonnes for the full year, but warned BHP was not immune to "the strong winds that are blowing" in commodities markets.

    A contraction in the next benchmark price would ring down the curtain on half a decade of uninterrupted price hikes that benefited the mining sector.

    http://www.chinamining.org/News/2009-02-04/1233729717d21266.html


 
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