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BHP Shifts Away From Annual Iron Ore Prices

Mining giant shifting from selling iron ore at annually agreed benchmark rates toward shorter-term arrangements amid debate over long-standing price system.

MELBOURNE, Australia (AP) -- Mining giant BHP Billiton Ltd. is continuing to shift from selling iron ore at annually agreed benchmark rates toward shorter-term arrangements amid debate over the long-standing price system.

The trend has continued since China, the world's largest iron ore importer, last year failed to negotiate deep cuts in the annual price its steelmakers pay the major ore producers. Analysts predict an upturn in ore prices as the global economy recovers in 2010.

BHP Billiton said Wednesday that only 54 percent of its iron ore shipped from Australia in the three months through December last year was sold at annually set prices. The remaining 46 percent was sold at shorter-term prices.

In July last year, the Melbourne-based company said 30 percent of its iron ore was sold on a mix of quarterly negotiated prices, spot prices and index-based pricing. BHP is the world's largest miner and third largest iron ore exporter.

The latest sales figures come amid ongoing debate about the four-decades-old benchmark pricing system.

Tensions between China and its foreign iron ore suppliers were heightened by China's detention in July last year of four employees of Rio Tinto Ltd., the world's No. 2 iron ore miner and lead negotiator for global miners in price talks, on allegations of commercial spying and bribery during 2009 price talks.

The four included an Australian, Stern Hu. They were charged in August with paying bribes to obtain confidential information about China's steel industry and remain in detention.

Chinese steelmakers, which account for about half of all BHP Billiton's iron ore sales, last year refused to sign up to the benchmark rate, demanding a better deal. They were ultimately unsuccessful.

Industrial analysts expect iron ore prices to rise 10 to 20 percent in 2010 on increasing demand as the world economy recovers.

Ahead of this year's price talks, Brazil's Vale SA, the world's biggest iron ore supplier, has signed independent ore contracts with Chinese steel mills for fixed freight charges, Chinese state-run media reported last month.

Western Australia state Premier Colin Barnett has said he wants the iron ore contract pricing system dismantled.

Gavin Wendt, resources analyst with the research company Mine Life Pty. Ltd., said the move away from selling iron ore at benchmark rates played into BHP Billiton's strategy.

"BHP in particular has been trying to move away from benchmark pricing," Wendt said. "There is a place for benchmark pricing, but it is going to be a smaller proportion of seaborne iron ore trade."

BHP Billiton's iron ore production jumped 11 percent to 35.77 million U.S. tons (32.45 million metric ton) for the December quarter compared to a year earlier.

That took production for the half year to 68.96 million U.S. tons (62.56 million metric tons), a record figure that was up 6 percent on the previous corresponding six months.

Chinese iron ore imports rose 41.6 percent to 630 million U.S. tons in 2009, Beijing's customs agency reported this month.

Economists say the buying binge has been driven in part by a Chinese effort to build up stockpiles while global prices are low.

BHP Billiton shares rose 1.3 percent to 43.85 Australian dollars ($40.23) on the Australian market during early trading on Wednesday.

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