BHP Billiton may simply be talking their book, but they don’t seem too worried about iron ore prices during their annual contract negotiations with China.
If anything, BHP sees contracted prices increasing by as much as 100% since spot prices are high and (they believe) will be perceived as sustainable.
“For iron ore, coking coal, the prices that we get today were settled at the depth of the economic crisis so I think there’s probably a good chance that they will go up from where they are today,” Kloppers told the Australian Broadcasting Corporation (ABC).
“One must remember what the benchmark price is. Once a year people sit down and they try and discover the forward price for the next 12 months, which is set by the supply and demand that they anticipate for the next 12 months. That’s how it’s always worked,” Kloppers said.
“So as they sit down this time, it’s a difficult job because there’s a lot of volatility, but they have to discover the forward price. But they are in luck. They have this market, the traded market, on which over 70 per cent of the iron ore in China is already traded. And where there is a forward price visible.
“And that price is roughly 100 per cent above where today’s price is.”
Everything BHP says needs to be taken with a grain of salt given that they are in the negotiation process, yet if contracted iron ore prices could deliver according to BHP’s stated expectations, it could mean that Chinese companies remain extremely optimistic in regards to the sustainability of domestic growth they see. Thus keep an eye on this space to get a feel of Chinese sentiment.