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Domestic steelmakers toughen ore freight stance

(China Daily)
Updated: 2008-04-30 09:42

China, the world's largest consumer of iron ore, won't accept demands from BHP Billiton Ltd and Rio Tinto Group for a freight premium on iron ore prices, the China Iron and Steel Association has said.

"China is decisively against any biased prices for Chinese companies," Luo Bingsheng, vice-chairman of the association, said yesterday.

Rio and BHP want to charge a premium because Asian steelmakers incur a lower cost shipping the material from their Australian mines than from Brazil.

Talks between Rio, BHP, the world's second and third-largest iron ore exporters, and Asian steelmakers have stalled partly because of the freight demands. Chinese steelmakers have agreed to pay Brazil's Cia Vale do Rio Doce between 65 percent and 71 percent more for contracts starting April 1.

"There is a rising expectation that BHP and Rio may in fact be able to negotiate a higher price than Vale," said Mark Pervan, commodity strategist at Australia and New Zealand Banking Group Ltd. The steelmakers "will try and compromise in a minimal way, maybe accept a 10-15 percent premium on top of the Vale outcome", he said.

The premium could be worth an additional $17 a metric ton, Deutsche Bank AG said last month.

"We hope to reach an agreement by June 30," Luo said. "We are also preparing contingency plans in case we can't make the deadline."

BHP and Rio may charge Chinese steelmakers at spot rates should an agreement on annual contracts not be agreed on by June 30, the association had said earlier this month.

The spot price of iron ore arriving at Beilun port in China as of April 25 was 1,480 yuan ($263.18) a metric ton including freight charges. That's almost four times more than the price steelmakers are paying Rio Tinto in annual contracts.

"We don't comment on iron ore customer negotiations," said Samantha Evans, spokeswoman for BHP in Melbourne. Rio spokeswoman Amanda Buckley was not available when contacted.