BHP settles price for 23% of iron ore

BHP Billiton has settled almost a quarter of its total iron ore volumes at the newly agreed benchmark prices while one-third will be sold at spot and index-based prices.

The miner said it has agreed to sell 23 per cent of its total iron ore volumes at an agreed annual contract price, with fines discounted 33 per cent compared to 2008 contract prices and iron ore lump to be sold at a 44 per cent discount.

It is the same deal negotiated by Rio Tinto with customers in Japan and South Korea.

BHP said today it had settled the price terms with a "range of iron ore customers".

"These terms vary and reflect the specific needs and requirements of each customer, consistent with out marketing approach," the company said in a statement.

The miner added that a further 30 per cent of its total iron ore volumes will be sold on a mix of quarterly pricing, the spot market and index-based pricing.

It said that negotiations for the remaining 47 per cent of iron ore volumes were ongoing.

"The Company believes that current settlements are indicative of continued progress towards transparent market pricing," BHP said.

Further comment was being sought from BHP at time of publishing.

The scale of BHP's iron ore sales indicates at least some major Chinese steel mills have agreed on prices.

In recent months the China Iron and Steel Association (CISA) has been insisting on a 40-45 per cent drop in iron ore prices compared to last year's level.

The arrest of four Rio Tinto employees on spying charges in China, including Australian Stern Hu, has been linked to the drawn-out negotiations with Chinese mills.

BHP has long sought changes to the benchmark contract system, in favour of a system based on spot prices or other indicators.

BT Investment Management resources analyst Tim Barker said the statement showed iron ore sales were evolving from the benchmark contract system.

"Clearly there is a significant proportion of the material now which is being sold in a different form, and it is a form they (BHP Billiton) are presumably reasonably comfortable with," Mr Barker said.

"Previously it (sales of iron ore) has almost all been contract, with only a very small proportion at spot (prices)," he said.

Mr Barker said it appeared at least some Chinese customers were holding out for a better deal.

"Generally speaking BHP Billiton won't comment on something until they are largely complete in all of their negotiations on pricing," he said.

"I think it is more significant that they have announced this while such a large percentage is under active discussion.

"By under discussion, I think you can read that as deliveries to Chinese customers," he said.

BHP Billiton said the current settlements were indicative of continued progress towards transparent market pricing.

The announcement is below:

BHP Billiton today announced the terms it has agreed with a range of iron ore customers for the 2009 contract year. These terms vary and reflect the specific needs and requirements of each customer, consistent with our marketing approach.

BHP Billiton has settled 23 per cent of total iron ore volumes at an agreed annual contract price. The price for iron ore fines will be approximately 33 per cent lower than the contract prices agreed in the 2008 contract year. The price for iron ore lump will be approximately 44 per cent lower than the contract prices agreed in the 2008 contract year.

A further 30 per cent of BHP Billiton's total iron ore volumes will be sold on a mix of quarterly negotiated pricing, market clearing price (spot market) and index-based pricing.

Negotiations for the remaining 47 per cent of iron ore volumes are ongoing.

The Company believes that current settlements are indicative of continued progress towards transparent market pricing.