China refusing to budge on BHP premium demands
Australian
iron ore producer
BHP Billiton continues to demand a $7.50-$10
freight premium on all shipments to Asia.
The company argues that cheaper
freight costs put the Australian ore into a highly advantageous position against the Brazilian ore. Therefore, the company is trying to squeeze out a price increase that would be in addition to the 71.5% hike that steelmakers agreed to with
Brazil's CVRD and
BHP's Australian competitor,
Rio Tinto Ltd.
BHP claims that the total procurement cost of Australian
iron ore is actually $20/metric ton cheaper than Brazilian ore due to the lower
freight costs to Asia.
Therefore, the company has been trying to tack on up to $10/metric ton over the new price of $50.5/metric ton. If
BHP gets its way, its prices would reflect a 105% year-on-year increase.
However, sixteen Chinese steelmakers have already voiced their opposition to
BHP's demand. The sixteen members of the
China Iron and Steel Association (CISA), including
Baosteel, Anshansteel and Wuhansteel, have reached a common understanding on rejecting
BHP's ’unreasonable' request for a
freight premium. The CISA members argue that such a practice on the part of
BHP is a breach of international convention.
Whether this current controversy will affect upcoming free trade negotiations between
Australia and
China remains to be seen.