Australian mining giant BHP Billiton said Wednesday that it had dropped a planned surcharge of up to US$10 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 in for fear of offending, or even losing, major customers in China; and the Chinese Government and steel producers are predictably pleased with their bargaining power.

"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 Chinese Ministry of Commerce said Wednesday in a statement.

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

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 steel makers an additional US$7.5-10 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 steel makers, who along with their Japanese counterparts had in February agreed to the 71.5 percent 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.

International iron ore prices are "very high" now, more than double from three years ago, Chen said.

Shagang's 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 by 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 future possible surcharges, despite BHP's temporary concession," Shen said.

In a statement to the Australian Stock Exchange, BHP Billiton said yesterday 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 growth of the domestic steel output will slow down thanks 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," he added.

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

To reduce dependence on imports, domestic mining firms are speeding up 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 will 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 of this year, 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$13.9) on the Australian Stock Exchange.

(China Daily April 14, 2005)