World leading iron ore provider BHP Billiton announced Wednesday it had signed a 10-year deal to supply China's Baoshan Iron and Steel Co. (Baosteel) with an additional 94 million tons of iron ore.
The Anglo-Australia miner will supply 10 million tons of iron ore annually to China's largest steel producer, up from 6 million tons under previous long-term supply arrangements, the two said in separate statements.
The first shipment under the new contract is scheduled for April. The ore will be supplied "at a price to be mutually agreed each year", they said.
"This is a significant quantity of iron ore and highlights our interest in keeping pace with high demand in China during a time when supply is tight," Tommy Schutte, BHP Billiton president of marketing and supply, said.
"We are doing this through substantial investment in the expansion of our mine, rail and port operations in Western Australia, with planned installed production capacity of 300 million tons per year by 2015," he said.
Dai Zhihao, Baosteel Group vice president, said: "The new supply highlights our optimism about the long-term prospects for the steel industry in China."
The long-term contract helps to guarantee resources, but it is hard to say how it would affect the on-going negotiation for the 2008 iron ore price, Zhang Jingang, vice secretary-general of China Iron and Steel Association (CISA), said.
On behalf of Chinese steelmakers, Baosteel is negotiating with major iron ore providers, including BHP Billiton, Rio Tinto and CVRD, the iron ore price for 2008.
Luo Bingsheng, CISA's vice chairman, told reporters on Wednesday that there was still a big divergence between the major buyers and sellers.
There were several positive factors for the Chinese side, Luo said. China's iron ore output was increasing rapidly and demand from the nation's steel makers was expected to fall in the next few years as they closed obsolete facilities, he added.
China is expected to eliminate 100 million tons of iron production capacity and 55 million tons of steel production capacity from 2006 to 2010, Luo noted.
In late 2006, Chinese steel makers agreed with major iron ore providers on a 9.5-percent price rise for iron ore imports for 2007. The lower-than-expected increase was deemed a success for Chinese buyers.
China, the world's largest steel producer and consumer, imported 383 million tons of iron ore in 2007, up 17.4 percent from 2006, according to statistics from China Customs.