TORONTO (miningweekly.com) – BHP Billiton does not plan to sign any new benchmark contracts for its iron-ore production, CEO Marius Kloppers reiterated on Wednesday.

The company will continue to negotiate annual prices for the production that remains under benchmark contracts, but will seek index-related contracts for new output that it brings online.

The major iron-ore producers have traditionally negotiated an annual benchmark price with customers in Asia and Europe, but BHP, under Kloppers, has repeatedly argued for market-related pricing.

“For many years we have said that this market has to change, and will change,” Kloppers told reporters on Wednesday morning.

The secretive annual price negotiations, which often drag on for several months, create prolonged tension between producers and customers, and become even more complicated when market conditions change suddenly in the middle of the negotiation process, he commented.

“We would love to sign longer term volume contracts priced on an index.

“We think there's a value proposition for the customer having security of supply and knowing what quality will come,” Kloppers said at an analyst and investor briefing later in the day.

However, if customers prefer not to sign index-related contracts, BHP will rather sell at so-called market-clearing, or spot prices than ink new benchmark prices, he said.

“Even in the depth of the financial crisis last year, when the spot price was well below the benchmark price, we were very willing to sell the product on the spot market.”

BHP Billiton, which published interim results early on Wednesday, sold about 56% of its iron-ore in the six months ended December 31 at benchmark price.

The balance was a mixture of spot sales, hybrid contracts and some shorter-term contracts agreed while the benchmark prices were still being negotiated.

Kloppers said the company sold some iron-ore at prices below the benchmark price earlier in the half, but that the market-clearing price was well above the benchmark level by the end of the period.

The overall impact on the average price realised by the group during the half was probably about 8% or so above the benchmark price, he estimated.

“But I want to emphasise, we are committed to selling on that market clearing price, whether its below or above the benchmark price,” Kloppers said.

The real growth in non-benchmark tons will come when the company brings on new production from its current growth projects, he commented.

The largest producer of the steelmaking ingredient, Brazil's Vale, has said it supports the existing annual benchmark system.

The Chinese steel association said this week that Chinese steelmakers had begun annual pricing negotiations with BHP, Vale and the second-largest producer, Rio Tinto.

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