BHP Billiton in iron ore supply pact with China's Baosteel

• to triple BHPB's iron ore production to 300mln tons a year in keeping pace with China's demand.

BHP Billiton said on January 30 it had signed an agreement to supply China`s Baoshan Iron & Steel Co (Baosteel) with iron ore, a key ingredient in steelmaking.

"With this new contract, Baosteel will be supplied from April 2008 with 10Mt of iron ore each year for 10 years at a price to be mutually agreed year by year," Melbourne-based BHPB said in an e-mailed statement.

The agreement helps BHPB secure customers, as it plans to almost triple iron ore production in Australia to 300 million tons a year by 2015, from 108 million tons.

"This is a significant quantity of iron ore and highlights our interest in keeping pace with high demand in China during a time when supply is tight,'' BHPB's Tom Schutte, president of marketing, said in the statement.

China has accounted for 65 percent of global growth in steel production in the past 10 years, and is now four times the size of the U.S. steel industry, BHPB Billiton said.

Baosteel, China's biggest steelmaker, plans to boost production capacity to 80 million tons a year by 2012 from an estimated 28 million tons last year, closing the production gap on the top global mill, ArcelorMittal.

The company would require 120 million tons of iron ore to meet the production target, according to Ma Haitian, an analyst with Beijing Antaike Information Development Co. Baosteel used 42 million tons of ore in 2006.

Spot iron ore prices rose 140% last year, exceeding US$100/t, reported by Credit Suisse Group. "The steelmakers have a sharp discrepancy with the miners on agreeing prices, Contract prices has tripled in five years to a record. " China Iron and Steel Association Vice Chairman Luo Bingsheng said.

BHPB is the world's third largest iron ore producer behind Brazil's Vale and Rio Tinto. It's partners are Itochu Minerals & Energy of Australia Pty, Mitsui-Itochu Iron Pty, Mitsui Iron Ore Corp.. BHP's share is 85 percent.

BHPB has proposed a merger with Rio Tinto, in part to control most of the mining operations in Australia's Pilbara region. Rio Tinto has so far rebuffed the proposal.

(Bloomberg, Reuters)