After the current negotiations, Australia-based miners BHP Billiton and Rio Tinto, respectively the world's biggest and third-biggest mining companies, may gain an increase of up to 85 percent in the 2008 iron ore contracts with Chinese steelmakers and may also obtain better prices for coal, the global banking giant Citigroup has forecasted.
The close proximity of the Australian ports in comparison to the Brazilian ports motivates customers from China and Japan to prefer the more cost-effective Australian iron ore to the Brazilian material, since soaring freight charges and iron ore price increases have created a disadvantage for iron ore coming from the Brazilian ports. Moreover, the Brazil-based world's biggest iron ore exporting company Vale has concluded agreements for an increase of 71 percent for some of its ore, while Rio and BHP who are still negotiating with the Asian steelmakers for 2008 prices, have stated that they will be trying to obtain a better rate than Vale's 71 percent secured for its Carajas mine in February.
Furthermore, the price estimates of Citigroup for coking coal used in steelmaking and for thermal coal burned to provide power have been changed. Because of the storms in Queensland, Chinese restrictions of exports, and underinvestment in the power supply network of South African state-owned power utility Eskom Holdings Ltd, there will be a rise of $85/mt, i.e. an increase from $200/mt to $285/mt in coking coal contracts. As regards thermal coal, an increase of $10/mt, up from $100/mt to $110/mt will be registered. However, coking coal prices may climb up to $308.70/mt on the back of the agreement concluded by Asia's third-biggest steelmaker POSCO on Tuesday, April 8, which tripled the benchmark contract prices.
Last year the reference prices in question increased by $55/mt for thermal coal and $98/mt for coking coal.