UPDATE 1-Rio to sell 15 mln tonnes of iron ore at spot
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SYDNEY, Dec 18 (Reuters) - Rio Tinto Ltd/Plc (RIO.AX)(RIO.L), the world's second biggest iron ore miner, said it plans to place up to 15 million tonnes of ore in the spot market in 2008, where returns are running at more than double contract prices.
The move follows years of big miners spurning spot sales in favour of locking in prices over a one-year period and leaving spot sales to smaller-sized miners, mainly in India and China.
It also means Rio was set to reap more revenue from the margins-intensive iron ore business amid efforts to fight off a takeover proposal from rival BHP Billiton Ltd/Plc (BHP.AX)(BLT.L), the third largest iron ore miner.
Rio also said it had sold one million tonnes of ore on the spot market for $190 per tonne in December and that a similar volume had been sold for January shipment at an average price of $187 per tonne.
This compares with this year's benchmark contract price of $85 a tonne.
The tonnages are small compared to Rio Tinto's overall production run of around 133 million tonnes last year, with the bulk of future output committed under long-term contracts, Rio said.
Expansion plans underway at Rio's mines in the Pilbara region of Western Australia meant the company was able to place substantially more tonnage in the spot market to capture higher prices, it said.
"The iron market is changing," Rio Chief Executive Tom Albanese said in a statement.
"Customers are demanding more transparency in pricing and more tonnes faster than ever before," Albanese said.
Albanese last month said it will cost about $10 billion to boost its iron ore output to 430 million tonnes a year by around the middle of the next decade.
Analysts predict that the prices mining companies charge steel mills for iron ore on a contract basis will rise by 50 percent or more in the next shipping year starting April 1, 2008, which would mark the sixth straight year of increases and potentially push spot prices even higher.
Contract iron ore prices are set each year by the big three mining companies -- Vale (VALE5.SA)RIO.N, Rio and BHP -- after closed negotiations with big steel producers in Europe, Japan and more recently China. A third round of those talks over next year's contract prices begins this week.
BHP recently said it wants to overhaul the benchmark pricing system in favour of an index to address an imbalance between benchmark contracts and the spot price.
BHP, which wants to merge with Rio in part to streamline iron ore shipments, eventually sees a mechanism fashioned along similar lines to an index emerging in the coal sector. The index proposal has failed to win Rio's support.
Iron ore mining is a low-margin, high-cost business, where hundreds of millions of tonnes of material must be dug up and sent to distant ports for shipment to the giant steel-making mills of Japan, Korea, Taiwan and, increasingly, China. (Reporting by James Regan; Editing by James Thornhill)
