BHP, Chinese steelmakers clinch an iron ore sales deal

A FACE-SAVING agreement over iron ore sales between Chinese steelmakers - who produce 38 percent of the world's steel - and BHP Billiton was finally clinched this week.

It followed an unprecedented six months of annual sales negotiations.

The Chinese Iron and Steel Association (Cisa) were demanding a 40 percent cut on last year's benchmark prices with the major iron ore companies settling with Japanese, Taiwanese, Korean and European mills on 33 percent.

Cisa was established by the Chinese government to represent three quarters of the country's steelmakers. But much to the annoyance of Beijing's central planners, several Chinese companies have surreptitiously broken with Cisa.

The latest agreement rings the death knell of the annual benchmark contract mechanism - something BHP Billiton's chief executive Marius Kloppers has been agitating for months.

In terms of the agreement, BHP Billiton will sell 30 percent of its ore delivered to China based on spot, quarterly and indexed prices, 27 percent under the benchmark system with a 33 percent price cut and the remaining 40 percent on a basis that is still being thrashed out.

The Chinese steelmakers, however, remain in negotiations with Rio Tinto, Vale and BHP Billiton, which is still the world's largest mining company.

The Chinese have become increasingly frustrated as the negotiations have dragged on, and even tried to pressurise Rio Tinto by arresting four of its negotiators on vague "spying" charges.

The latest agreement will have little effect on South Africa's Kumba, the world's fourth largest producer, which sells largely on the spot market and which takes its pricing cues from the three majors.