iron price hike 65 percent

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BHP, Rio benefit from iron ore price hike
February 18, 2008 02:29pm

AUATRALIA'S two largest iron ore producers BHP Billiton Ltd and Rio Tinto Ltd are set to benEfit from a reported 65 per cent increase in contract prices for the bulk commodity.

Nippon Steel, the world's second largest steel maker, has agreed to the increase for benchmark contracts starting April 1, according to media reports.

The hike would mark the sixth consecutive increase for iron ore and the second largest after steel mills agreed to a 71.5 per cent gain in 2005.

Analysts had widely tipped an increase of 50 per cent or higher amid an increase in steel production, tight supply and a dip in China's domestic iron ore production.

A 65 per cent increase in the iron ore price is likely to provide a significant windfall for BHP Billiton and Rio Tinto, which are significantly ramping up output to capture demand.

Rio Tinto's iron ore division was the second largest earner for the group in calendar 2007, delivering earnings of $US2.651 billion ($2.93 billion) for the year.

The company, Australia's largest producer of the bulk commodity, recorded output of 179 million tonnes of iron ore during 2007.

"In a broad setting of strong demand growth and constrained supply, the iron ore markets can be expected to remain and perhaps become increasingly tight,'' Rio Tinto chief economist Vivek Tulpule said in a February 13 statement on the outlook for 2008.

Rio Tinto was unavailable for comment today.

Benchmark pricing is negotiated between the world's three largest iron ore producers - Brazilian giant Vale, Rio Tinto and BHP Billiton - and Asian and European steel mills.

BHP Billiton has flagged a desire to overhaul the traditional benchmark pricing system in favour of an openly traded index to address the imbalance between benchmark contract and the spot price.

The company declined to comment on the reported price rise today.

"We never comment on iron ore negotiations,'' BHP Billiton spokesperson Sam Evans said.

http://www.news.com.au/business/story/0,23636,23232617-31037,00.html