Chinese steel makers, the world's largest consumers of iron ore, will resist any attempt by BHP Billiton Ltd to win a larger price than agreed to with Rio Tinto Group, an official familiar with the talks said yesterday.
Any move by BHP, the third-largest exporter of the ore, to link contract prices to higher spot prices will be rejected, said the official who declined to be identified because the talks are private. An agreement may be reached next week with Melbourne-based BHP, the source said.
Baosteel Group Corp, China's largest steel maker, agreed on Monday to pay Rio Tinto as much as 97 percent more for annual contract iron ore as demand outpaced global supply. BHP said the settlement means it's still cheaper for Asian steel makers to buy Australian ore than Brazilian ore.
"BHP will probably compromise with Baosteel and accept the Rio accord because both sides should aim at long-term interests," Helen Lau, a Shanghai-based analyst at Daiwa Securities Group Co, told Bloomberg News.
Iron ore prices have surged for six years, raising costs for steel makers. Baosteel, South Korea's Posco and some rivals have taken advantage of rising demand to pass on the costs by lifting steel prices.
Nippon Steel Corp, which hasn't increased prices enough to cover costs, said in April that full-year profit will fall 41 percent.
London-based Rio's accord with Baosteel exceeds the 71-percent gain steel makers gave Brazil's Cia Vale do Rio Doce, the world's largest supplier of iron ore.
Chinese steel makers still incur a higher cost for buying from Vale because it costs about US$45 a ton more to ship ore from Tubarao in Brazil to China, than from Western Australia, based on average freight prices of the past 12 months.
Rio, the second-largest supplier of the material, said Asian steel makers should pay more for their Australian ore because of the lower shipping costs.
(Shanghai Daily June 26, 2008)