SYDNEY (Reuters) - Benchmark iron ore prices are set to rise sharply in the coming months due largely to a resurgence of demand from China, BHP Billiton chief executive Marius Kloppers said.
Kloppers said in a television interview broadcast on Sunday that forward prices stood around 100 percent above benchmark prices, and demand from China had picked up from the global downturn faster than expected.
"For iron ore, coking coal, the prices that we get today were settled at the depth of the economic crisis so I think there's probably a good chance that they will go up from where they are today," Kloppers told the Australian Broadcasting Corporation (ABC).
Kloppers was speaking on the ABC's Inside Business programme, in an interview recorded on Friday.
His comments come amid annual negotiations between the world's leading iron ore producers and their customers.
Kloppers said BHP Billiton's forecasts suggested steel production by Chinese mills would increase for at least another 20 years, doubling from current levels by 2025.
"One must remember what the benchmark price is. Once a year people sit down and they try and discover the forward price for the next 12 months, which is set by the supply and demand that they anticipate for the next 12 months. That's how it's always worked," Kloppers said.
"So as they sit down this time, it's a difficult job because there's a lot of volatility, but they have to discover the forward price. But they are in luck. They have this market, the traded market, on which over 70 per cent of the iron ore in China is already traded. And where there is a forward price visible.
"And that price is roughly 100 per cent above where today's price is."
Iron ore prices are set annually, usually by the start of the Japanese financial year in April, in protracted negotiations involving buyers and the major miners of iron ore, BHP Billiton, Rio Tinto
Last year the producers came under intense pressure from steel mills in China to drop their prices.
A senior Rio Tinto executive in China, Australian citizen Stern Hu, and three Chinese employees have been arrested and charged with bribery and stealing commercial secrets.
The case has strained relations between China and Australia, where much of the iron ore used by Chinese steel mills is mined.
(Editing by Sugita Katyal)
