ore price hike, page-3

BHP, Rio seen selling iron ore in line with CVRD
By James Regan

SYDNEY (Reuters) - Australia's Rio Tinto and BHP Billiton, two of the world's top three iron ore miners, are likely to match a 9.5 percent hike won by Brazil's CVRD in their negotiations for next year's supplies, analysts said.

CVRD said on Thursday it had agreed to the increase for 2007 with China's Baosteel <600019.SS>. Rio Tinto and BHP Billiton declined to comment pending the outcome of their own negotiations.

Analysts said South Korea's Posco Co. <005490.KS>, the world's third-largest steelmaker, and Japanese steel mills, which traditionally settle before the Chinese, will have little choice but to agree to the rise, given China's growing clout in steel making.

European mills also were likely to settle at the same level, they said.

"This will set the benchmark for next year's prices and the other mills will follow suit," said Andrew Harrington, commodities analyst at Australia & New Zealand Bank.

"The writing has been on the wall that steel prices were not going to fall the way some in China were saying earlier in the year, so another increase should be easily absorbed."

The deadline for the talks is normally April 1, which is when the new prices go into effect.

"The agreement between Baosteel and CVRD is expected to put pressure on POSCO as the hike is at the upper end of market expectations," said Moon Jung-up, a steel analyst at Daishin Securities in Seoul.

The 9.5 percent hike covers fine ores from CVRD and is near the top end of analysts' forecasts of an increase of between 5 and 10 percent.

No price has been announced for iron ore pellets or lump, which is little used by the Chinese, but Macquarie Research analyst Jim Lennon expects a similar rate of increase for those products.

The agreement between CVRD and Baosteel marked the first time that a Chinese steelmaker has led the way in annual price negotiations with global mining heavyweights, reflecting China's emergence as the world's largest consumer of iron ore.

The CVRD statement attributed the speed of the negotiations -- the quickest since 1994 -- to "highly professionally driven negotiation" by Baosteel. Two Chinese trading firms were given more say this year, and Baosteel more decision making power, after political interference caused the Chinese to miss out on settling first at a roughly 10 percent rate last year.

"Both sides are extremely satisfied with the results," said a Baosteel spokesman.