BHP may seek iron ore price rise after Rio deal

By Eric Onstad and Humeyra Pamuk

LONDON (Reuters) - BHP Billiton (BHP.AX: Quote, Profile, Research, Stock Buzz) (BLT.L: Quote, Profile, Research, Stock Buzz) said on Tuesday that Rio Tinto's (RIO.L: Quote, Profile, Research, Stock Buzz) (RIO.AX: Quote, Profile, Research, Stock Buzz) record iron ore price settlement with China's Baosteel failed to provide an adequate freight premium, signaling it may seek a further price hike.

Rio secured a price increase of up to 96.5 percent from Baosteel (600019.SS: Quote, Profile, Research, Stock Buzz) on Monday, the biggest rise in at least a decade, putting further pressure on steelmakers by setting a precedent for the industry and adding to fears of inflation.

Rio's near doubling in the term price increases eclipses the 65 to 71 percent that Asian mills and Brazilian miner Vale (VALE5.SA: Quote, Profile, Research, Stock Buzz)(RIO.N: Quote, Profile, Research, Stock Buzz) clinched in February, but BHP, the only major producer still in talks, hinted that it may still not be enough.

"We're delighted to see the progress," said Marcus Randolph, chief executive for ferrous and coal at BHP Billiton, referring to the price rise. "But it doesn't actually cover the full difference."

It costs $55-$60 per tonne less to ship ore to China from Australia than from Brazil, he said.

"What's effectively happening is we're not getting paid for our product the same price as somebody else is for their similar product delivered into China ... We're substantially disadvantaged on price," Randolph said.

BHP and Rio typically follow the first settlement reached, but the stakes have been raised this year as the value they can squeeze out of their iron ore assets is seen as a key factor in the $167 billion BHP bid for Rio.

But many analysts say it will be difficult for BHP to secure a further price increase from its negotiations with the Chinese steelmakers, as there's already a benchmark price settled.