China Wants Bigger Ore Price Cuts From BHP Than Vale (Update1)

China, the world¡¯s largest buyer of iron ore, will demand a bigger cut in prices from BHP Billiton Ltd. and Rio Tinto Group than from Brazil¡¯s Cia. Vale do Rio Doce after shipping costs plunged, the nation¡¯s steel association said.

BHP and Rio almost doubled prices for their ore from Australia last year, exceeding the 71 percent gain Vale won because it was cheaper to ship the material to China from Australia than from Brazil.

¡°There¡¯s no equalization if Australian and Brazilian ores get the same cuts,¡± Shan Shanghua, secretary general of the China Iron and Steel Association, said in an interview from Beijing late yesterday. ¡°That¡¯s unacceptable.¡±

Chinese steelmakers are pushing for the first reduction in seven years for benchmark contract iron ore prices as the global recession crimps demand from carmakers and builders. Prices for Australian iron ore may fall at least twice as much as those sold by Vale, Credit Suisse Group AG said this week.

¡°There¡¯s speculation China wants the prices to move back to 2007 levels, which means BHP and Rio should give up the freight compensation they enjoyed last year,¡± said Du Wei, head of iron ore research at Umetal Research Center. ¡°It¡¯s reasonable as the freight difference has been narrowed.¡±

Shipping ore costs about $55 a metric ton less from Australia than Brazil last June when Chinese steelmakers agreed to pay BHP and Rio a higher price. The difference has slumped to $13.6 a ton yesterday on the Baltic Dry Index.

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