vale wins 90% jump , page-2

http://www.theaustralian.com.au/business/bhp-wins-100pc-price-rise-for-iron-ore/story-e6frg8zx-1225847681890

it looks like BHP has also won higer prices but over 100% because of the freight differential.

expect big price moves in the Jr's over the next few days, people expected 40% increases, not 100%!!!

BHP wins 100pc price rise for iron ore Sarah-Jane Tasker From: The Australian March 31, 2010 12:00AM Increase Text SizeDecrease Text SizePrintEmail Share
Add to DiggAdd to del.icio.usAdd to FacebookAdd to KwoffAdd to MyspaceAdd to NewsvineWhat are these?BHP Billiton has secured close to a 100 per cent jump in iron ore prices and convinced the major Chinese steel mills to accept short-term pricing in a groundbreaking move that kills off the controversial annual benchmark system.
The world's largest miner yesterday took a significant step in chief executive Marius Kloppers' campaign to introduce short-term pricing, by moving the majority of its contracts with Asian customers to a quarterly system -- the first change in 40 years.

Macquarie analyst Brendan Harris described the announcement as a "momentous day" for the major. "It's not every day that the pricing terms for one of the core commodities in world trade change," he said.

"BHP Billiton's announcement suggests that we are unequivocally in a transitional phase, which sounds the death knell of the old benchmark system." BHP did not disclose the prices achieved, but analysts said it was likely to represent a 100 per cent increase on last year's benchmark of about $US65 a tonne.

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BHP, which argues that short-term pricing is fairer and more transparent, said the agreements represented the majority of its iron ore sales volumes.

"The structural change that these settlements represent is consistent with BHP Billiton achieving market clearing prices," the company said in a statement.

BHP's announcement came as it was reported that major competitor Vale, which recently joined the campaign to push for market prices, negotiated a 90 per cent rise in iron ore prices for the April to June period with major Japanese steelmakers Nippon Steel and Sumitomo Metal Industries. Nippon Steel and South Korean steelmaker Posco, which jointly purchase iron ore, have reached a provisional agreement with the Brazilian miner on a 90 per cent price rise from a year earlier to about $US110 a tonne.

Rio Tinto has yet to confirm any iron ore contracts this year, but indicated it was open to a move to shorter-term pricing.

The BHP contracts will also deliver a windfall for the Australian economy, which will benefit from the $40 billion-plus that iron ore exports generate annually. BHP said its agreements were on a "landed price equivalent basis", which means it would have a competitive advantage over Vale because of the shorter distance to market for its ore. Merrill Lynch analyst Peter O'Connor said "landed" price should deliver BHP a windfall of about $US17 a tonne more than it does Vale.

"Clearly, BHP is flagging that the freight differential -- long debated by Australia and Brazil -- has been captured by the Australians," he said in a report. "The quantum of difference in terms of equivalent price is significant. In contrast to Vale's reported $US105-$US110/t price, BHP should gain an additional $US17/t (average freight differential in Q1), hiking Australian price expectations for the June quarter to around $US120 a tonne.

"This would be a gain of almost 100 per cent compared to the prevailing (outdated) contract price."

Iron ore talks collapsed last year, with the Chinese holding out for 50 per cent price cuts, while the three mining giants, BHP, Rio, Vale, agreeing on a 33 per cent cut with their Japanese and Korean customers. "China has not got it right on iron ore negotiations," an industry insider said.

The drama surrounding iron ore negotiations was highlighted by the case of Rio's Stern Hu and three of his colleagues, who received jail sentences on Monday on charges of bribery and stealing commercial secrets relating to the annual talks.

Despite short-term contracts being accepted by most of BHP's Chinese customers, Industry and Information Technology Ministry official Jia Yinsong reportedly said yesterday that China still supported benchmark pricing.