In an interview, CEO Marius Kloppers said he backs flexible pricing for iron ore buyers and plans to sell uranium to China.
Zhao Jianfei and intern researcher Jessica Rapp 9 June 2009
(Caijing.com.cn) BHP Billiton’s chief says his company wants to offer price flexibility to Chinese steelmakers and other buyers of raw materials, acknowledging customers need prices that correlate with steel prices in what is now a soft global market.
“We are comfortable with customers either wanting a one-year price or, if our customers ask us for a fluctuating price, we will give that to them as well,” said BHP’s chief executive Marius Kloppers in a May 27 interview in Canberra with Caijing. “I think this year we will get a mixture of both types.”
BHP has proposed abandoning the traditional benchmark system since 2006. The company favors a hybrid ore sales system that combines pricing from the spot market and traditional annual negotiations, allowing prices to float according to supply and demand. Twenty-one percent of the company’s iron ore sales during the first quarter 2009 were based on a market clearing price, according to Kloppers.
“We are selling a certain volume on benchmark, and now more and more volumes are being sold on the market clearing price,” Kloppers said. “I think that the proportion that is sold on the index will grow every year.”
The latest round of annual, typically tough price talks between Chinese steel mills and iron ore suppliers is continuing. Shan Shanghua, secretary-general of the China Iron & Steel Industry Association, said June 5 that China will reject a 33 percent price cut that Japanese steelmakers worked out with another leading supplier, Rio Tinto.
When asked whether BHP would accept a deeper price discount as requested by Chinese steelmakers, Kloppers said his company is willing to offer a more flexible pricing mechanism to Chinese customers.
“In China, the market is very dynamic,” he said. “The steel price goes up and down every day. It is not like Japan, with steel prices flat for one year at a time.” BHP and Rio Tinto signed an agreement June 5 to form a 50-50 joint venture that combines all current and future iron ore operations in Western Australia’s iron ore-rich Pilbara province. As part of the deal, BHP will pay US$ 5.8 billion to Rio Tinto.
The Chinese steel industry opposed the joint venture, worrying the move would create monopoly conditions.
Kloppers said while current international demand for raw materials is unlikely to reach the “panic buying” level seen in the past few years, BHP intends to expand production during the current market cycle, taking advantage of lower costs.
BHP also plans to ship uranium to China from its mines in Western Australia, Kloppers said.
Kloppers said BHP currently has no plans for major Chinese investments because the company relies primarily on the export business, while China is an importer.
But he did not rule out future investments in Chinese companies, and said he wants to maintain good relations. A conference later this year is aimed at improving communications between the Chinese government and Australian firms including BHP.
Caijing: Does BHP expect a new benchmark price this year?
Kloppers: It’s always difficult for us to comment about things in the short term because of anti-trust reasons. If I say too much to you, then I can really get into very serious trouble.... What I will say is the same thing I’ve said for the last couple of years: In China, the market is very dynamic: The steel price goes up and down every day. It is not like Japan, with steel prices flat for one year at a time. I think what I am seeing this year and what we are continuing to see more is that customers will want more and more raw material prices that correlate with steel prices. We don’t really care what happens. We are comfortable with customers either wanting a one-year price or, if our customers ask us for a fluctuating price, we will give that to them as well. I think this year we will get a mixture of both types.
Caijing: Do you mean there could be two different pricing systems?
Kloppers: Already is. If you look at the volumes, we are selling a certain volume on benchmark, and now more and more volumes are being sold on the market clearing price. I think that the proportion that is sold on the index will grow every year.
Caijing: Do you know how big the figure is now?
Kloppers: We disclosed 21 percent over the last quarter, but you should expect that the percentage will continue to increase.
Caijing: Chinese steel mills still won’t accept the benchmark price. Do you think they will reach their goal of a deeper discount?
Kloppers: It is very difficult for me to comment again, but some contracts clearly expect the reference benchmark price.... But I think the most important thing is what I said to you before: Some Chinese steel mills want benchmark and some want flexible prices. This change will continue to occur.
Caijing: Do you think the industry has hit bottom?
Kloppers: What is happening now is China is restocking, but the U.S. and Europe are still weak. My theory is that when China finishes restocking, the U.S. will start restocking, then Europe. I think next year we will see what the underlying demand is.
Caijing: Do you think even after the stocking factor clears, the industry will possibly go back to the high-level days of the past years?
Kloppers: The real economy for some years will be quite modest.
Caijing: So that means the industry boom will not be repeated?
Kloppers: We will not see what we call “panic buying.”
Caijing: When do you think you can really start BHP’s expansion plans?
Kloppers: We have two uranium projects. And people only talk about the one, but we have another project in Western Australia called Yeelirrie. We are very optimistic about China using nuclear power as part of an ex-carbon solution.... In fact, I believe we just saw the first-ever cargo of uranium delivered under the bilateral safeguard last week.... And we want to do both of the projects. The first one is probably Yeelirrie because it’s a smaller project. We will do it for about 4,000 or 5,000 tons of uranium per year.... Then, we hope to store mature technologies for the Olympic Dam for a couple of years.
Caijing: When do you think Yeelirrie can produce?
Kloppers: Last year I had to say to a lot of people that we can never predict this because we have not proved it. It’s not a very complex project now that Western Australia has relaxed mining conditions. Previously, you could not mine uranium in Western Australia. Now, we are very happy because the new government there is very permitting, so we are pushing the approval as quickly as we can.
Caijing: Do you have interest in investing in China?
Kloppers: Not really. I don’t want to rule it out; you don’t know where there might be an opportunity. But if you look at China, it’s a country that requires all resources. That’s why it imports.We see ourselves as a company that balances the world’s need for energy and raw materials, and that’s our primary objective.
Caijing: Is that the reason you closed your office in Beijing?
Kloppers: No. I think you understand that we are not without impacts. We are affected by the slump.... We took a look around the world and said that, unfortunately, we have to decide between Shanghai and Beijing, and we decided to concentrate on Shanghai.
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BHP Billiton’s Price Plan for a Soft Market
In an interview, CEO Marius Kloppers said he backs flexible pricing for iron ore buyers and plans to sell uranium to China.
Zhao Jianfei and intern researcher Jessica Rapp
9 June 2009
(Caijing.com.cn) BHP Billiton’s chief says his company wants to offer price flexibility to Chinese steelmakers and other buyers of raw materials, acknowledging customers need prices that correlate with steel prices in what is now a soft global market.
“We are comfortable with customers either wanting a one-year price or, if our customers ask us for a fluctuating price, we will give that to them as well,” said BHP’s chief executive Marius Kloppers in a May 27 interview in Canberra with Caijing. “I think this year we will get a mixture of both types.”
BHP has proposed abandoning the traditional benchmark system since 2006. The company favors a hybrid ore sales system that combines pricing from the spot market and traditional annual negotiations, allowing prices to float according to supply and demand. Twenty-one percent of the company’s iron ore sales during the first quarter 2009 were based on a market clearing price, according to Kloppers.
“We are selling a certain volume on benchmark, and now more and more volumes are being sold on the market clearing price,” Kloppers said. “I think that the proportion that is sold on the index will grow every year.”
The latest round of annual, typically tough price talks between Chinese steel mills and iron ore suppliers is continuing. Shan Shanghua, secretary-general of the China Iron & Steel Industry Association, said June 5 that China will reject a 33 percent price cut that Japanese steelmakers worked out with another leading supplier, Rio Tinto.
When asked whether BHP would accept a deeper price discount as requested by Chinese steelmakers, Kloppers said his company is willing to offer a more flexible pricing mechanism to Chinese customers.
“In China, the market is very dynamic,” he said. “The steel price goes up and down every day. It is not like Japan, with steel prices flat for one year at a time.”
BHP and Rio Tinto signed an agreement June 5 to form a 50-50 joint venture that combines all current and future iron ore operations in Western Australia’s iron ore-rich Pilbara province. As part of the deal, BHP will pay US$ 5.8 billion to Rio Tinto.
The Chinese steel industry opposed the joint venture, worrying the move would create monopoly conditions.
Kloppers said while current international demand for raw materials is unlikely to reach the “panic buying” level seen in the past few years, BHP intends to expand production during the current market cycle, taking advantage of lower costs.
BHP also plans to ship uranium to China from its mines in Western Australia, Kloppers said.
Kloppers said BHP currently has no plans for major Chinese investments because the company relies primarily on the export business, while China is an importer.
But he did not rule out future investments in Chinese companies, and said he wants to maintain good relations. A conference later this year is aimed at improving communications between the Chinese government and Australian firms including BHP.
Excerpts from the interview with Kloppers follow.
Caijing: Does BHP expect a new benchmark price this year?
Kloppers: It’s always difficult for us to comment about things in the short term because of anti-trust reasons. If I say too much to you, then I can really get into very serious trouble.... What I will say is the same thing I’ve said for the last couple of years: In China, the market is very dynamic: The steel price goes up and down every day. It is not like Japan, with steel prices flat for one year at a time. I think what I am seeing this year and what we are continuing to see more is that customers will want more and more raw material prices that correlate with steel prices. We don’t really care what happens. We are comfortable with customers either wanting a one-year price or, if our customers ask us for a fluctuating price, we will give that to them as well. I think this year we will get a mixture of both types.
Caijing: Do you mean there could be two different pricing systems?
Kloppers: Already is. If you look at the volumes, we are selling a certain volume on benchmark, and now more and more volumes are being sold on the market clearing price. I think that the proportion that is sold on the index will grow every year.
Caijing: Do you know how big the figure is now?
Kloppers: We disclosed 21 percent over the last quarter, but you should expect that the percentage will continue to increase.
Caijing: Chinese steel mills still won’t accept the benchmark price. Do you think they will reach their goal of a deeper discount?
Kloppers: It is very difficult for me to comment again, but some contracts clearly expect the reference benchmark price.... But I think the most important thing is what I said to you before: Some Chinese steel mills want benchmark and some want flexible prices. This change will continue to occur.
Caijing: Do you think the industry has hit bottom?
Kloppers: What is happening now is China is restocking, but the U.S. and Europe are still weak. My theory is that when China finishes restocking, the U.S. will start restocking, then Europe. I think next year we will see what the underlying demand is.
Caijing: Do you think even after the stocking factor clears, the industry will possibly go back to the high-level days of the past years?
Kloppers: The real economy for some years will be quite modest.
Caijing: So that means the industry boom will not be repeated?
Kloppers: We will not see what we call “panic buying.”
Caijing: When do you think you can really start BHP’s expansion plans?
Kloppers: We have two uranium projects. And people only talk about the one, but we have another project in Western Australia called Yeelirrie. We are very optimistic about China using nuclear power as part of an ex-carbon solution.... In fact, I believe we just saw the first-ever cargo of uranium delivered under the bilateral safeguard last week.... And we want to do both of the projects. The first one is probably Yeelirrie because it’s a smaller project. We will do it for about 4,000 or 5,000 tons of uranium per year.... Then, we hope to store mature technologies for the Olympic Dam for a couple of years.
Caijing: When do you think Yeelirrie can produce?
Kloppers: Last year I had to say to a lot of people that we can never predict this because we have not proved it. It’s not a very complex project now that Western Australia has relaxed mining conditions. Previously, you could not mine uranium in Western Australia. Now, we are very happy because the new government there is very permitting, so we are pushing the approval as quickly as we can.
Caijing: Do you have interest in investing in China?
Kloppers: Not really. I don’t want to rule it out; you don’t know where there might be an opportunity. But if you look at China, it’s a country that requires all resources. That’s why it imports.We see ourselves as a company that balances the world’s need for energy and raw materials, and that’s our primary objective.
Caijing: Is that the reason you closed your office in Beijing?
Kloppers: No. I think you understand that we are not without impacts. We are affected by the slump.... We took a look around the world and said that, unfortunately, we have to decide between Shanghai and Beijing, and we decided to concentrate on Shanghai.
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