China indicates may pay iron ore freight fee-paper

Sun Apr 27, 2008 9:00pm EDT
SYDNEY, April 28 (Reuters) - Chinese steel firms have indicated that they may accept demands from Australian miners BHP Billiton Ltd (BHP.AX: Quote, Profile, Research) and Rio Tinto Ltd (RIO.AX: Quote, Profile, Research) for a freight premium on iron ore prices, The Australian newspaper said on Monday. The paper said Zou Jian, chairman of the China Metallurgical Mining Association, told an industry gathering in Shanghai that steel firms were considering including the freight fee, based on long-term rates.
BHP and Rio have been pushing for a freight premium on iron ore to China in the latest contract negotiations, arguing that delivery times from Australia to Asia are shorter.
Brazil's Vale (VALE5.SA: Quote, Profile, Research), the world's largest iron ore producer, in February agreed to 2008 term iron ore prices with Chinese steel mills that are 65 to 71 percent higher than the previous year. This benchmark is normally followed by Australian miners.
But soaring prices have emboldened Rio and BHP to try for even higher prices based on their freight advantage over Brazil. Shipping costs from Brazil are more than double those of about $30 a tonne from Australia. The paper said Jian told reporters that Chinese buyers would consider the BHP and Rio request for a freight differential, but only for up to half of what the Australian miners could get on spot markets.
Jian also said he was confident that the contract negotiations with the two miners would be completed before the June 30 deadline.
Negotiations between the two miners and Chinese buyers have been tense, with some buyers angry that that the miners were trying to shift cargoes to the spot market, where returns are higher than contract prices. (Reporting by Jonathan Standing)