Iron ore talks to drag on after 'deadline'

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

30 Jun 2008

Talks between BHP Billiton and Chinese steel mills on 2008 iron ore prices will continue past an informal industry deadline on Monday, sources familiar with the situation said. Chinese steelmakers, led in the talks by Baosteel, will still be able to import iron ore at last year's rate from BHP, the world's largest miner, as none of the contracts between the two sides carried a June 30 expiry, one of the sources said. A June 30 expiry has traditionally applied to Australian mining deals with Japanese steel mills as well as some contracts with the Chinese industry.
"BHP signed supply contracts with Chinese steel mills with different expiry dates," another of the sources said.
"Negotiations are still ongoing and will not not reach a conclusion today," he said.
A third source, a Baosteel executive, also told Reuters that he did not expect a deal with BHP on Monday and did not believe this would pose any risks for the company.
A spokesman for BHP declined to comment.
Baosteel agreed on behalf of its Chinese rivals to pay up to 96.5 percent more for iron ore in 2008 than last year under a term contract with Rio Tinto early last week, higher than the 65 to 71 percent rise that Japanese and Chinese mills clinched with Brazilian miner Vale in February.
Some contracts between Chinese steel mills and Rio Tinto would have expired on June 30, two of the sources said.
This year marks the first time that miners have not all accepted the same percentage change in iron ore prices, opening the door to further differentials by quality and region.
That could change the tenor of annual term price negotiations, in which all mills and miners traditionally accept whatever settlement is reached first.
The system has proven inflexible as rapidly expanding Chinese steel capacity caused spot iron ore prices and freight rates to balloon over the last few years.
However, the China Iron and Steel Association, which represents steel mills producing about 80 percent of Chinese crude steel output, opposes efforts by BHP to determine international iron ore prices with a price index.
Using an iron ore index to determine a market benchmark price would contravene the principles of demand and supply and would be divorced from the current reality of seaborne iron ore trade, the association was quoted as saying in the official China Securities Journal on Monday.

Source: Reuters