UPDATE: BHP Strikes Mix Of Indexed, Benchmark Iron Prices
July 29 2009 - 2:33AM
Dow Jones News
BHP Billiton Ltd. (BHP) has taken a significant step forward in
its campaign to change the way iron ore is priced, announcing that
30% of its sales will now be a mix of indexed pricing, quarterly
pricing and spot sales.
BHP said it has also settled a further 23% of its sales under
the traditional annual benchmark system at prices in line with
those already agreed between Rio Tinto Ltd. (RTP) and Japanese
steel mills.
And talks are ongoing with customers over the remaining 47% of
its iron ore volumes, BHP said.
"The company believes that current settlements are indicative of
continued progress towards transparent market pricing," BHP said in
a statement.
Iron ore miners have been locked in a protracted standoff with
Chinese steel makers in annual pricing talks, but BHP would not say
if Chinese mills were among those who have agreed to indexed and
quarterly pricing.
While BHP declined to give any break down by country of its
various agreements, it appears likely that the 23% who have
accepted the Rio Tinto price, a 33% cut for fines and 44% for lump,
will be Japanese and Korean steel mills who have already shown they
are happy with this price.
Similarly, with just under half of BHP's iron ore sold into
China, it seem reasonable to assume that the 47% of sales where
talks are ongoing will relate to China.
However, a major point of interest will be whether any Chinese
mills are among those who have agreed to indexed pricing or
quarterly pricing negotiations and if so whether the China Iron
& Steel Association, lead negotiator for China in this year's
talks, has approved the move.
Macquarie Equities senior mining analyst Brendan Harris said
that from BHP's announcement it appears the pricing stand off with
China is ongoing, but that the shift of significant tonnages to
indexed and quarterly pricing was still a major development in the
fast evolving iron ore market.
"This is confirmation that there will be significant volumes
that will float at indexed or spot pricing, which is currently
trading at well above benchmark," he said.
"It means that the market has changed forever and we have now
moved towards a structure which is a blend of different types of
contracts with some related to this indexed or spot mechanism which
creates more volatility but also more transparency."
BHP Chief Executive Marius Kloppers has long argued that the
current annual benchmark pricing system is outdated and that more
regular repricing is needed to reflect market movements during the
year.
-By Alex Wilson, Dow Jones Newswires; 61-3-9292-2094;
alex.wilson@dowjones.com