BHP Billiton Ltd/Plc on Wednesday predicted growing liquidity in international iron ore markets will force its customers to dump annual contract pricing and accept spot-based trading, a change so far resisted by steel mill buyers in Asia.
"There is a very deep and liquid market in iron ore at the moment on which literally hundreds of millions of tonnes of iron ore is traded," BHP Billiton Chief Executive Marius Kloppers told reporters in a teleconference.
"There are multiple brokers that put out quotes and are prepared to do financial or physical deals at that price," Kloppers said.
Kloppers told a separate analysts' briefing that any real growth in its non-benchmark sales would follow production increases from its mines.
BHP, which is the world's third largest iron ore producer after Brazil's Vale <VALE5.SA> and fellow Australian Rio Tinto <RIO.AX><RIO.L>, is in the final stage of a 50 million tonnes-per-year expansion project in Australia that will lift its capacity to 205 million tonnes by mid-2011.
BHP Billiton is locked in annual price negotiations with mills covering most of the 155 million tonnes of ore it plans to export from mines in Australia this year, a process it has criticised as failing to reflect changing market conditions.
"I always point back to where the market is today as the best indicator of where supply and demand is and the best indicator of what expectations should be on where prices are headed," Kloppers said.
Spot iron ore prices of around $125 per tonne, CIF China <1062-CNI=SI> were about twice the price of the current free on board benchmark price that took effect April 1 2009 and will run until March 31, he noted.
Freight costs, which are included in the spot price but not in the FOB price, from Australian to China currently run at about $12-$13 per tonne, traders said.
About two years ago BHP stopped signing new long-term benchmark framework deals which will result in the end of all benchmark sales before the end of the decade.
As older deals expire, they liberate around 10 million tonnes of iron ore per year for non-benchmark sales in addition to any growth in output.
Combined benchmark and spot sales this year allowed BHP Billiton to achieve an average price about 10 percent over the benchmark, Kloppers said.
"We are committed to selling on that market clearance price, whether is is below or above the benchmark price," Kloppers said.
BHP Billiton earlier on Wednesday reported $5.702 billion in underlying profits before one-offs, of which $2.09 billion came gleaned from its iron ore business. [ID:nSGE61800Z]
Price hikes on annual contracts could exceed 50 percent this year because of strong demand to feed a global recovery in steelmaking, led by China. (Reporting by James Regan and Sonali Paul; Editing by Nick Trevethan)