Baosteel to pay bhp 97% more

Baosteel to pay bhp 97% more

By China Daily
Asia News Network
Beijing
Published on July 7, 2008

Miner forces steel firm to increase prices, matching Rio Tinto deal, as demand soars

BHP Billiton, the world's thirdbiggest iron-ore exporter, won a price increase of as much as 97 per cent from Baosteel Group, matching the agreement reached by Rio Tinto Group.

Baosteel will pay the higher prices in the 12 months that began from April, BHP said. The company was seeking to settle agreements with the rest of its customers in China and other countries.

Iron-ore prices have gained almost fourfold since 2001 to a record because of surging demand, raising costs for steelmakers and boosting profits of producers. They may gain another 20 per cent next year as demand outpaces supply and new projects are delayed, Merrill Lynch said last month.

"There is no surprise that BHP would accept the same prices Rio has settled, as BHP is the smallest among the three major exporters to China," International Capital Corporation analyst Luo Wei said. "Iron-ore prices may hold or only rise slightly next year as steel production slows."

BHP has made a US$157-million (Bt5.25 billion) hostile takeover offer for Rio, the world's second-largest exporter of iron ore, to gain control of half of the Asian market for the raw material.

BHP's agreement on Friday and Rio's June 23 accord with Baosteel exceeds the 65 per cent gain steelmakers gave Brazil's Cia Vale do Rio Doce, the world's largest supplier of iron ore, in February.

Rio and BHP want Asian mills to pay more for their Australian ore because it is cheaper to transport the material to their countries than from Brazil. Rio's accord includes a so-called freight premium that is worth $7.50 a tonne, BHP said last month.

Rio's accord did not cover the $40- to $50-a-tonne difference between the cost of shipping ore from Brazil and Australia to China, BHP said.

BHP chief executive Marius Kloppers said the company wants to sign iron ore contracts linked to spot prices or a pricing index.

However, an official said Chinese steelmakers, the world's largest consumers of iron ore, will reject any moves to link contract prices to spot prices.

Higher prices for iron ore and coking coal have spurred Baosteel, South Korea's Posco and other rivals to raise prices for products sold to auto-makers and builders to pass on costs.