Chinese mills keep BHP in check

Chinese mills keep BHP in check

Chinese steel mills piled the pressure on BHP Billiton, finally forcing the Australian iron ore miner to retract its demands for a freight premium on shipments to China. In addition to the global price increase of 71.5% for iron ore, BHP had been trying to tack an additional $7.50 to $10 per metric ton on to shipments destined for China. BHP justified the freight premium by arguing that the company's ore ended up being relatively cheaper than Brazilian ore because of the difference in shipping costs. However, a sharp outcry from Chinese steelmakers caused company officials to rethink their strategy. Upon further reflection, BHP, which sells 23% of its ore to China, decided to sacrifice extra short-term profits in order to avoid upsetting a long-term relationship with customers in China. Following BHP's decision, 16 major steel makers of China calmed down and accepted the global 71.5% price increase. The new price of the company's Mt Newman High Grade Fines is 61.72 US cents per dry metric ton unit. BHP still intends to bring the freight premium issue back to the agenda next year, however.