Against the background of strong demand for iron ore, especially from China and other big Asian buyers, senior BHP Billiton and Rio Tinto executives were sounding very bullish at a big iron and steel conference in Perth yesterday.
There was lots of talk about new projects, expanding capacity and Chinese demand and little public discussion of the new pricing deals that the big iron ore companies seem to be in the processing of reaching with Japanese steel mills.
These quarterly agreements would seemingly match the quarterly pricing and volume arrangements that BHP struck with buyers of its hard coking coal in Japan, Asia and Europe (but not China).
Rio’s iron ore boss, Sam Walsh said he expected delays to the BHP joint venture because the project was very complex; the company was looking at six major projects to boost production, with the driver being an expectation that Chinese demand would double by 2020.
He said this strong growth would happen despite risks of a property bubble and low or no economic stimulus measures.
"We will go through blips along the way, but when you look at the fundamentals of urbanisation and industrialisation that is happening in China, we feel confident we’ll see that growth," he said.
"We have in the past underestimated China."
To get there Rio and BHP will have to do some sweet talking of the Chinese steel mills who are worried about a looming price jump, and that Pilbara joint venture.
European and Japanese mills are also concerned and have lobbied the European Commission to try and stop the venture.
Mr Walsh warned challenges from regulators would be "complex and demanding" and this could delay the venture until later this year.
"We’d expect that approvals would be more likely later this year than the original time frame," Mr Walsh said in response to questions at the Perth meeting.
The main sticking point for speedy resolution of the venture is the EC competition inquiry.
Mr Walsh also said Rio had six projects on a list it was studying for possible development.
“To align with major port expansions, we’re immediately studying six new mine developments or expansions to increase iron ore capacity,” Mr Walsh said.
China took 70% of Rio’s iron ore exports in 2009. The company plans to boost production to 330 million tonnes a year by 2015.
Rio last Friday signed a joint venture agreement with Chinalco (it’s biggest shareholder) for the possible development of a huge iron ore project in Guinea in West Africa.
And the man slated to run the joint venture with BHP, had a similar upbeat message for the conference.
BHP Billiton Iron Ore president Ian Ashby said "China will not reach its inflection point in steel intensity for at least another 20 years".
Both Mr Walsh and Mr Ashby reiterated theirs calls for a quarterly index-based iron ore pricing system.
"There is a disparity between the benchmark (pricing system) and the spot market," Mr Walsh said.
"The benchmark system has to evolve."
That’s the argument BHP has been making to buyers in 2010 contract talks.
BHP shares ended up 47c at $43.06, and Rio shares closed 69c higher at $75.72.
