Vale, BHP Signal Doubling of Iron Ore Spot Market Prices

15 February 2010 (Last Updated February 15th, 2010 18:30)

BHP Billiton and Vale SA, the two companies ironing out ore prices with China, have said that this year’s iron contracts should reflect the doubling in so-called spot market prices. BHP chief executive officer Marius Kloppers told Australia’s ABC that market price is what the benchmark

BHP Billiton and Vale SA, the two companies ironing out ore prices with China, have said that this year’s iron contracts should reflect the doubling in so-called spot market prices.

BHP chief executive officer Marius Kloppers told Australia’s ABC that market price is what the benchmark price is supposed to be.

Chinese Mills brought doubt on the four-decade-old annual pricing system last year by refusing to accept a 33% gain sought by BHP, Vale and Rio Tinto.

Vale Ferrous Minerals director Jose Carlos Martins said that if customers want to stick to benchmark prices, they will have to accept something close to the level of spot prices.

BHP and some Chinese steelmakers have agreed to a provisional 40% increase in contract iron-ore prices.

A 40% increase in contract prices, however, would make the price of Australian ore rise to about $84 a metric tonne, from about $60 a tonne, according to Bloomberg.

The China Iron & Steel Association said last week that talks to set 2010 prices have already begun between mills and suppliers.

BHP Billiton said it is pushing to reduce iron ore volumes sold through the benchmark contracts in favour of alternatives more closely linked to immediate-delivery values.

China has a very high demand for ore; however, Chinese steelmakers do not earn good profit because of overcapacity and high raw-material prices.