Iron ore price set to surge

Iron ore prices could hit record levels as miners push for the current spot price to indicate the new benchmark.

This year could see a major shift in iron ore trading with prices potentially doubling as the big miners push for current spot prices to be the key market indicator.

Speaking to the ABC’s Inside Business yesterday, BHP Billiton chief executive Marius Kloppers said that spot prices should be used when setting the iron ore benchmark.

“The market price is what the benchmark price is supposed to be,” he said.

This would have a major impact on iron ore sales because the spot price is approximately double the benchmark iron ore price Australia negotiated with Japan and Korea last year.

“I don’t know what the price settlement will be when we get to that point,” Kloppers said.

“What I do know is that today’s price is almost double what last year’s benchmark, which was set in the depths of the financial crisis, was.”

With the current spot price for iron ore at US$125 per tonne, more than double the US$60 per tonne benchmark price from last year, Australia’s iron ore exports would dramatically increase from the current $34 billion a year if the new price was set.

Kloppers’ comments come after a recent report out of China that suggests that a small number of Chinese steel mills have reached a 40% price increase with BHP.

Citing Hu Kai, senior analyst for Chinese steel industry research company UC361, the Dow Jones Newswires report said that the agreements were “short-term contracts” and do not represent a final agreement on the 2010-2011 benchmark price.

Kai said that it appears at this point that only BHP had made such a deal.

BHP declined to comment when contacted by MINING DAILY.

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