Iron ore prices may rise 30% next year: BHP

BHP Billiton, the world's biggest mining company, said there's strong demand for iron ore as mining companies and steelmakers prepare for annual price negotiations later this year.

"The market is very tight," Marius Kloppers, who will become chief executive officer of Melbourne-based BHP on October 1, said in an interview in Santiago. It's "very buoyant at the moment", he said.

Benchmark prices may rise 30 per cent next year because of a shortage of supply, Merrill Lynch & Co said last week. Cia. Vale do Rio Doce, Rio Tinto Group and BHP, the three largest exporters, can't expand production fast enough to meet demand from steelmakers in China, the biggest user of the alloy.

"There's not a lot of spare ore out there," said Peter Arden, a commodity analyst at Ord Minnett in Melbourne. "It's going to be a case of paying up for the steelmakers."

BHP rose 15 cents, or 0.4 per cent, to A$38.65 at the 4:10 p.m. close in Sydney. It has gained 53 per cent this year, compared with a 9.9 per cent advance in the Australian benchmark S&P/ASX 200 Index.

Mining companies and steelmakers including ArcelorMittal and Baosteel Group Corp usually begin talks on annual contract prices from October. Baosteel, China's largest steelmaker, settled prices first in the last round of talks, agreeing to a 9.5 per cent increase for 2007. It was the fifth straight increase.

The Chinese "will be very active", in talks this year, and there's good demand from China and "maybe India", Kloppers said.

China, which makes a third of the world's steel, may boost output by 15 per cent to 490 million tonnes this year, the National Development and Reform Commission, the country's top planning agency, said this month. China overtook Japan as the largest buyer of iron ore in 2003 as it increased production of cars, buildings and appliances.

Kloppers also reiterated that BHP would only be interested in investing in aluminium plants should there be sufficient power available nearby. He declined to specify sites under examination, except to say they may be in "challenging locations".

"The aluminium industry is a business we are interested in," he said. He declined to answer a question on whether BHP would be interested in bidding for aluminum producer Alcoa.

BHP is seeing "very favorable conditions for all our products," Kloppers said. BHP is the world's largest exporter of coal used in steel, and also sells copper, nickel, oil, gas, sliver, lead and aluminium.