BlueScope has lashed out at the USD 116 billion planned BHP Billiton Rio Tinto iron ore merger and BHP's plan to ditch annual iron ore pricing, saying more consolidation and pricing uncertainty could hurt steel producers.
Mr Paul O'Malley CEO of BlueScope also said that iron ore contract prices could jump 60% or more in this year's round of negotiations and he was considering entering the iron ore mining business to keep a lid on costs.
He said that a move last week by Brazilian giant Vale to join BHP's quest to kill annual pricing had caught his industry unawares.
He added that "Vale's comments highlight the speed of change in the market it has probably moved a lot more quickly than anybody in the steel industry thought."
He said that a move away from annual pricing would increase cost uncertainty for BlueScope and would make it challenging for a company that had a 20 year investment horizon.
BlueScope was one of the first steelmakers to agree to BHP's demands for an end to annual pricing when in September 2008 it agreed to quarterly reset prices. At the time, BlueScope said the new contract was expected to maintain BlueScope's competitive position in the industry.
Since then, Mr O'Malley's tune has changed. He said that there was a definite asymmetry in quarterly pricing between what miners, which because of high industry concentration participate in most spot deals, and steelmakers know.
Asked if he had concerns about the BHP Rio merger of their Pilbara region iron ore operations in Western Australia, Mr O'Malley said that "I'm very concerned about anything that increases rather than decreases concentration, and also increases barriers to entry from others that would give a bit more diversification of ownership. Rio and BHP have been quite open about the benefits of the joint venture. Whether that actually flows on to the steel industry or not, I'm not sure."
Mr O'Malley said that he was bracing for a big increase in iron ore prices this year, possibly bigger than the 40% to 50% analysts were expecting. He added that "There is going to be a range of outcomes, somewhere between 35% and 60% or even higher."
(Sourced from www.theaustralian.com.au)
