July 8, 2008

Baosteel agrees to double iron ore prices

SYDNEY, Australia

BHP Billiton Ltd. said late last week that China’s Baosteel, negotiating on behalf of the Chinese steel industry, agreed to price hikes of up to 96.5 per cent for iron ore supplies this year.

The increase, following protracted negotiations, is in line with an agreement Baosteel made last month with Rio Tinto, another major supplier, and comes as surging global demand for steel has squeezed iron ore supplies and sharply boosted prices.

BHP Billiton, the world’s largest mining company, said prices will rise 79.9 per cent for iron ore fines and 96.5 per cent for iron ore lump, retroactive to April 1.

“At the end of what has been a long process, we believe our relationship with our customers remains as positive and strong as ever,” stated Marcus Randolph, BHP Billiton’s chief executive for ferrous metal and coal.

Chinese steel mills have banded together to negotiate with iron ore suppliers in recent years in hopes of getting a better deal. But they still have been forced to accept big price increases in each of the past six years.

China is the world’s biggest producer and consumer of steel. Growth has been driven by a surge in demand from the country’s thriving export industries and a construction boom that is remaking dozens of Chinese cities.

Rising demand for iron ore has brought a financial windfall for suppliers such as Rio Tinto, BHP Billiton and Brazil’s Companhia Vale do Rio Doce SA. All are investing heavily to increase output.

Baosteel agreed in February to a 65 per cent price hike with Vale on behalf of Chinese mills.

Associated Press

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