Iron ore price negotiations – BHPB wants more freight premium

June 27, 2008

June 27th (SteelPrices India) – Although Rio Tinto struck a price deal with China’s biggest steel mill, Baosteel this week beginning, BHPB has refused to concede it is close to signing a similar deal with its customers.

BHP Billiton believes that Rio’s agreed price rise of 80% to 96.5% still does not close the shipping gap, despite being higher than the 65% to 71% obtained by Vale of Brazil.

Mr Marius Kloppers CEO of BHP Billiton said that its rival’s price increase was only 10% of the freight differential between Australia and Brazil.

The Rio Tinto Baosteel price deal includes a USD 7.45 per tonne freight bonus to reflect the USD 27 per tonne saving the Chinese steel mills achieve by sourcing their iron ore from the Pilbara, rather than Brazil. Rio’s deal means it has picked up about 28% of the freight saving.

More fundamentally, BHP Billiton wants to end the annual contract system. Mr Kloppers wants to scrap those negotiations, moving iron ore sales to a hybrid system between the spot market and the traditional annual contracts with automatic price revisions depending on the tightness of the market.

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