It doesn’t mean much yet, but BHP Billiton is slowly changing the global iron ore trade, even though it’s the third biggest producer behind Rio Tinto and Vale of Brazil.
In a statement to the ASX yesterday, BHP revealed that 23% of its iron ore sales this financial year will be sold at a 33% discount to last year’s prices and about one-third will be sold based on a mix of different pricing systems.
The 33% would be the contracts BHP has struck with steel mills in Japan, South Korea and Taiwan.
“Negotiations for the remaining 47 percent of iron-ore volumes are ongoing,” BHP said in a statement to the ASX.
BHP normally doesn’t comment on pricing or contracts while negotiations are going on: it revealed the Japanese and other settlements only after they had been struck.
The comments seem to be suggesting to hold out Chinese buyers, that BHP is succeeding in its campaign to break down the fixed pricing system. Seven Chinese steel mills are said to be among those already settled.
It said around 30% will be sold on a mix of quarterly negotiated pricing, spot market and index-based pricing, the statement said.
China, the biggest buyer of the raw material, wants a discount of as much as 45%, more than the 33% cut agreed to by Japanese and Korean steelmakers.
BHP did not say which of its customers would be using the different pricing mechanisms.
But with the Chinese contracts uncompleted, it would be logical to assume that they would be involved.
But there have also been reports that some Chinese mills have provisionally settled contracts, with new price talks or a rollover arrangement at the end of September. Media reports said several Chinese mills were in the group to have already settled, but don’t want to be identified.
Rio has reached similar agreements with Japanese, South Korean and Taiwanese mills and said it around 50% of first half sales were on the spot market.
Spot prices have been rising and are currently over $US90 a tonne, including freight ex the North Western Australian coast.
BHP Billiton said the current settlements were indicative of continued progress towards transparent market pricing.
BHP shares fell 59 cents to $37.43 yesterday.
Shares in Australand finished lower yesterday after the real estate developer and investor completed the first part of its $475 million capital raising.
The shares closed at 45.5 cents, down 9% or 4.5c from their close before Monday’s issue was announced.
The issue was done at 40 cents a share, so the instos that took up the shares have made a nice killing, as usual.
The listed property trust raised about $380 million under the institutional offer after existing institutional securityholders took up 99% of their entitlements.
The seven-for-10 non-renounceable pro-rata entitlement offer of new securities at 40 cents each was a 20% discount to the 50 cent closing price last Friday.
CEO, Bob Johnston said in a statement the group was pleased with the strong support shown by existing and new investors.
"This reflects Australand’s strong balance sheet position post the capital raising and the successful execution of our key strategies and priorities in the first half of the year, including securing three new debt facilities, repaying our CMBS maturity and extending our Multi-Option Facility."
The underlying fundamentals for each of the divisions were sound and Australand was well positioned for recovery, he said.
The retail component to raise about $95 million opens on August 5.
A different market reaction for Virgin Blue with the shares closing up 1 cent at 30 cents, compared to a pre- issue price of 29 cents and issue price of 20 cents, in effect giving the shareholders who took up the shares a 50% profit, which is a real killing.
Virgin Blue said yesterday it successfully completed the $133.1 million institutional components of its capital raising.
That was part of Monday’s $231.4 million fully underwritten equity raising aimed at strengthening its balance sheet.
Virgin Blue said on yesterday that the institutional placement of 105.2 million shares had raised $21 million, while an institutional entitlement offer of approximately 560.4 million shares raised $112.1 million.
The offer and placement were "well oversubscribed", Virgin said, with approximately 96% of the new equity taken up by existing shareholders.
The airline said it will release details about its retail entitlement offer shortly.
That offer consists of 491.5 million new shares, which is expected to raise a further $98.3 million.
Richard Branson’s Virgin Group will take up its 25% stake and will underwrite a part of the issue, a move that could see it lift its holding to just over 30%.
