Shares in global resources group BHP Billiton on Wednesday afternoon fell to a six-week low after the group announced that it has given in to Chinese steel makers demands that it settle at 71,5% for its iron-ore contract price increase, the same level at which its two major iron-ore mining competitors have settled, analysts said.
The strong rand also knocked the group’s share price lower.
At 2.45pm, BHP Billiton’s shares on the JSE Securities Exchange (JSE) were quoted at R80,70, down 2% or R1,68 from its previous close. A tad earlier, the stock fell to R80,50, its lowest level since February 24 this year.
“BHP Billiton’s share price is probably lower following the announcement of the group’s iron-ore settlement at 71,5%. The market was expecting BHP Billiton to settle between 71,5% and 110% higher than the 2004 settlement; instead they came out at 71,5%,” a Johannesburg analyst said.
“The negotiations to get a higher price than 71,5% have been tough on BHP Billiton, and they could have also irritated some of their Asian steel customers, which isn’t a good thing. Rand strength today [Wednesday] would also have taken BHP Billiton’s share price lower,” he added.
The increase of 71,5%, effective from April 1 2005 and running to March 31 2006, is the same as that achieved by Brazilian mining group Companhia Vale do Rio Doce and London-listed miner Rio Tinto.
The price of Mount Newman high-grade fines increased to 61,72 United States cents per dry metric tonne unit, up 71,5%, and prices for Mt Newman High Grade Lump, Pisolite (Yandi), Marra Mamba (Area C MAC TM) and Brockman (Yarrie) ores increased by the same percentage.
BHP Billiton president of iron ore Graeme Hunt said the price increases are a result of increasing global steel demand.
Hunt said that while BHP Billiton was not successful this year in gaining recognition of the freight cost advantages to north Asian steel makers in sourcing Australian iron ore, the issue is still relevant. — I-Net Bridge