Australian mining giant BHP Billiton said on Wednesday that it had dropped a planned surcharge of up to US$10.00 per ton on its iron ore exports to Chinese steelmakers and agreed to set the price rise at 71.5 percent, in line with its rivals.

Analysts said BHP Billiton gave way to pressure from Chinese customers for fear of offending or even losing them.

"It will be helpful for the healthy development of the international iron ore trade. Iron ore trade is an important part of bilateral trade between China and Australia, and we will continue to support companies of the two nations to form a long-term and stable relationship on the principle of mutual benefit," the Ministry of Commerce (MOFCOM) said yesterday in a statement.

Chen Jun, an official at Shanghai BM Import and Export Co., an iron ore trader owned by top steel producer Shanghai Baosteel Group, said: "This is the result of our joint efforts and represents a landmark victory for Chinese steelmakers."

Shen Wenrong, chairman of Shagang Group, a steelmaker in Jiangsu Province, echoed his sentiments. "We are glad to see BHP Billiton make a wise decision as its surcharge violated international trade rules."

BHP Billiton had wanted to charge Chinese steelmakers an additional US$7.50 to US$10.00 per ton because of lower shipping costs, which made Australian imports cheaper than those from Brazil, on top of the 71.5 percent price increase.

The move met with strong resistance from the nation's 16 biggest steelmakers, who, along with their Japanese counterparts, had agreed in February to the price increase with BHP Billiton's major rivals, Rio Tinto and Companhia Vale do Rio Doce. The three are estimated to control more than three-quarters of global trade in iron ore.

"We have to boycott such unreasonable requirements according to the international rules of the game to maintain the healthy development of China's steel sector," said Qi Xiangdong, deputy secretary-general of the China Iron and Steel Association (CISA).

International iron ore prices are "very high" now, having more than doubled in the past three years, according to Chen.

Shen said, "We should have a strong say in the international iron ore trade in line with our steel industry's position in the world; and we should also unite in overseas bargaining."

China has been the world's biggest steel producer since 1996. The nation's steel output grew 22.7 percent to almost 273 million tons in 2004, accounting for a quarter of global output.

"We should not slacken our joint efforts to deal with possible future surcharges, despite BHP's temporary concession," Shen said.

In a statement to the Australian Stock Exchange, BHP Billiton said it would continue to discuss the issue of the surcharge with its customers in the year ahead.

"China's demand for foreign iron ore is likely to be affected as the growth of domestic steel output will slow owing to the central government's macro-economic controls," Shen said. "It will not be good for BHP if it wants to impose arbitrary charges on us again."

BHP Billiton's Chinese customers include Baosteel, Shagang, Wuhan Iron & Steel Group, Ma'anshan Iron & Steel Co. and Tangshan Iron & Steel Co.

China's iron ore imports are expected to amount to 240 million tons this year, up from 208 million tons last year and 140 million tons in 2003, Qi said.

The steel association earlier predicted that China's steel output would reach 300 million tons this year.

To reduce dependence on imports, domestic mining firms are boosting iron ore production.

"The average iron ore output in China could reach 500 million tons annually over the next three to four decades according to proven reserves," said Zou Jian, chairman of the China Metallurgical Mining Enterprise Association.

China's iron ore output is forecast to increase to nearly 370 million tons this year from 310 million tons last year. Output grew to 72.2 million tons in the first quarter, up 18 million tons from a year ago.

Shares of Baoshan Iron & Steel, the traded unit of Baosteel Group, rose 0.11 yuan (1.3 US cents), or 1.8 percent, yesterday while BHP stock fell 9 Australian cents (6.9 US cents), or 0.5 percent, to A$18.09 (US$13.90) on the Australian Stock Exchange.

(China Daily April 14, 2005)