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July 30, 2009

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BHP agrees new ore pricing

BHP Billiton, the world's third-largest iron ore producer, has agreed to sell 30 percent of its volume for the 2009 contract year under new pricing mechanisms rather than traditional annual term prices.

The 30 percent will be sold on a mix of quarterly negotiated pricing, spot market and index-based pricing, the Melbourne-based miner said yesterday in an update on ore price negotiations.

China's steel industry group has been demanding deeper cuts in annual prices after Japanese and South Korean mills accepted a 33-percent cut for benchmark ore with Rio Tinto, the world's No.2 ore miner.

Such indexed or spot mechanisms could create more volatility but also more transparency in reflecting movements in the market.

"The company believes that current settlements are indicative of continued progress towards transparent market pricing," BHP said.

Judy Zhu, a Standard Chartered Bank analyst, said: "The Australian miners have long preferred such index pricing, and that's exactly what they first proposed."

BHP said it has only settled 23 percent of total iron ore volumes at an agreed annual contract price that matched the 33-percent price cut struck by Rio and some other Asian mills, while negotiations for the remaining 47 percent are ongoing.

BHP refused to specify which customers had entered into annual contracts or other different pricing mechanisms.

Some Chinese steel mills have accepted a temporary 33-percent price cut, although the China Iron and Steel Association, lead negotiator for China this year, is holding out for better prices.


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