BHP wins 100pc price rise for iron ore

[Cees Binkhorst]

REPLY TO: D66 at nic.surfnet.nl

Hoezo 30% omhoog vlgs Nederlandse berichten?

Kloppers van BHP maakt bekend dat de prijsvorming nu via een 'korte
termijn markt' tot stand gaat komen.
Even ter herinnering: BHP, Rio Tinto (beide Australië) en Vale
(Brazilië) controleren 90% van de markt ;)

Kloppers heeft zelfs voor elkaar gekregen dat het prijsverschil door
verschepingskosten van Vale uit Zuid-Amerika naar China in rekening mag
worden gebracht door BHP.

Groet / Cees

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

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.

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