BHP in deal with China to raise iron ore price

BHP Billiton has almost doubled the price it charges for iron ore, after a deal brokered with Chinese steel producers following lengthy and sometimes bitter negotiations.

Chinese State officials said yesterday that they had agreed to a 96.5 per cent increase in iron ore prices charged by the Australian mining company, a deal that is broadly in line with the terms agreed by Rio Tinto last month.

BHP, which confirmed the announcement in a statement to the Australian Stock Exchange, had been hoping for a larger increase reflecting the large freight costs that are associated with shipping iron ore to China from Brazil, where Australian miners' biggest competitors are based.

However, the end of the talks over contracts that are worth billions of dollars paves the way for price increases to be implemented immediately. Further delays would have prevented BHP striking deals with other customers and also run the risk of jeopardising relationships with China.

Judy Zhu, a commodity analyst at Standard Chartered bank, said: "Iron ore producers will make more money and the steel makers, although they are paying more for their raw materials, will be able to pass these higher costs on to their customers – it is the downstream users who will have to bear higher prices."

BHP is trying to buy Rio Tinto in a deal that would create a single Australian iron ore prod-ucer. The takeover is being scrutinised by regulators around the world and has caused concern in China, which is worried about the potential emergence of such a dominant player. It emerged last night that the European Commission has opened an in-depth inquiry into the takeover. A tie-up between BHP and Rio would create a firm with a third of the world's iron-ore market.