By Jin Jing (China Daily)
Updated: 2008-01-31 09:53

Baosteel Group Co Ltd yesterday said it has signed a new 10-year contract with Australian BHP Billiton Ltd for iron ore supply.

According to the contract, Melbourne-based BHP will supply a total of 94 million metric tons of iron ore to Shanghai-based Baosteel at about 10 million metric tons a year, up from six million metric tons in the old contract that is about to expire.

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The first batch of iron ore under the new contract will be shipped to Baosteel from April at a price to be agreed through consultations each year, according to a Baosteel statement.

"The large amount of iron ore supply shows BHP is striving to meet China's demands when the global market supply is tight," Tommy Schutte, president of BHP marketing, said in the statement.

Schutte added that the annual iron ore production capacity of BHP is expected to increase to 300 million metric tons in 2015, with its efforts to increase investment in mines, railways and ports in Western Australia.

Dai Zhihao, deputy general manager of Baosteel, said the new contract showed the company remains optimistic about the future of China's steel industry.

Analysts said the long-term contract provides Baosteel with a reliable iron ore supply for steel making, although the price will still need to be negotiated each year.

The latest round of negotiations between suppliers and buyers around the world to determine iron ore prices for 2008 began in December 2007.

Brazil's Companhia Vale do Rio Doce (CVRD), a leading supplier, will visit China this month to talk directly with Baosteel. Industry sources said Baosteel, as a major buyer, will have a big say in the pricing.

Baosteel consumed around 40 million metric tons of iron ore in 2007. "The number is expected to increase to 50 million metric tons in 2008," said Yang Baofeng, an analyst at Orient Securities.

According to statistics from Sinolink Securities, around 75 percent of the iron ore Baosteel used was imported, mainly from the three largest mining companies: BHP, Rio Tinto and CVRD.

Around 16 million metric tons of iron ore supply comes from Baosteel's overseas holding companies. China's domestic supply accounted for only about 25 percent of Baosteel's annual consumption.

BHP has a long-term partnership with Baosteel for raw material supply, including iron ore, manganese and coking coal. It also supplies Baosteel with nickel.

In 2005, BHP signed an agreement with Baosteel to enhance cooperation on technical research, mainly focusing on steel and iron.

Around 60 percent of China's iron ore supply is imported. Of this, 60 percent is from Australia and 20 percent from Brazil.

Baosteel and Wuhan Iron and Steel Corp are the two biggest iron ore users in China.