BHP last to sign iron ore price pact with Baosteel

SYDNEY/HONG KONG (Reuters) - BHP Billiton Ltd/Plc (BHP.AX)(BLT.L) has matched takeover target Rio Tinto Ltd/Plc (RIO.AX)(RIO.L) with a near doubling in contract iron ore prices, ending months of talks and speculation it may get more.

BHP said on Friday it had secured a 96.5 percent increase for iron ore lumps and a 79.88 percent increase for fines from China's Baosteel (600019.SS) for 2008-09, and would roll these out to other customers in Asia.

It indicated the protracted talks were unlikely to tarnish its relations with customers, whom it is trying to persuade to support its hostile bid for Rio.

"At the end of what has been a long process, we believe our relationship with our customers remains as positive and strong as ever," BHP's chief executive for ferrous and coal operations, Marcus Randolph, said in a statement.

Baosteel and other steelmakers have told BHP Chief Executive Marius Kloppers they are worried that a combination of BHP and Rio would have too much power in setting the price of iron ore, the main feedstock for steel.

China already takes half of all the ore that BHP mines. BHP, Rio and Brazil's Vale control about 70 percent of the iron ore that China buys.

"For the industry from mills to iron ore producers, everyone wins," Judy Zhu, analyst at Standard Chartered Bank, said earlier on Friday as word of an agreement started to leak out.

"Iron ore producers will make more money and the steel makers, although they are paying more for their raw materials, will be able to pass these higher costs to their customers. It will be downstream users who will have to bear higher prices."

It is the sixth year in a row iron ore prices have gone up, for a seven-fold increase since 2000.

Vale (VALE5.SA)RIO.N agreed to a 65-71 percent rise in February, but Rio and BHP had argued that soaring freight rates made Australian ore much cheaper relative to Brazilian grades.

The rare divergence in Australian and Brazilian deals comes at a time when BHP is also pushing to price more of its iron ore on the basis of spot market prices, irking customers such as Baosteel, Nippon Steel Corp (5401.T) and South Korea's POSCO (005490.KS), which are already fuming over its plans to buy Rio and gain more sway over resource supplies.

BHP is offering $152 billion in shares in an unsolicited bid to buy Rio, in part to combine both companies' iron ore mines in Australia.

"Nobody can tell right now exactly how things will be next year. This year it's a new story for everything," said Li Xinchuang, vice president of the China Metallurgical Industry Planning & Research Institute.

The benchmark price each year is closely watched because it also determines what smaller iron ore miners and steel mills worldwide can expect to pay during the 12 month shipping year ending every March 31.

Rio Tinto said on Tuesday that all of its Asian customers had now agreed to an up to 96.5 percent price hike for ore delivered between April 1, 2008 and March 31, 2009.

News of the agreement comes just a day after BHP won partial U.S. antitrust clearance for its Rio bid and the same day that the European Commission is expected to announce an in-depth investigation that could last beyond year end.

(Additional reporting by Nick Trevethan in Singapore; Editing by Michael Urquhart)