BHP Billiton fails to win premium on iron ore deal

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The Independent Online

BHP Billiton, the mining giant, has failed to get Chinese steel mills to accept a doubling in prices for the supply of iron ore.

The miner had to settle for a still impressive rise of 71.5 per cent for its ore, in line with the rest of the industry, it announced yesterday.

The Anglo-Australian group had been hoping for an increase of 100 per cent or more in its price. Its ore is shipped from Australia, which is cheaper than the alternative main supply from Brazil.

BHP argued that the price of its ore in China should equal the price of ore from Brazil, where suppliers have already negotiated a 71.5 per cent price rise with Far East customers. As Australia is closer, making BHP's shipping costs lower, the mining company was hoping to pocket the difference.

Patrick Cleary, at the steel consultancy CRU, said that, given the tightness of global iron ore supply, this was the best year for BHP to force through the extra charge. However, the company's position was undermined when a rival Australian supplier, Rio Tinto, agreed last month to take the 71.5 per cent price increase that the Brazilians had accepted. Mr Cleary ssid:"BHP's position became untenable when Rio settled. The question is, why did Rio accept?".

The price of iron ore and coking coal, the other main raw material for making steel, are set once a year. For 2005, coking coal prices have already been settled at a 120 per cent rise.

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