BHP plays down iron ore dispute with China, sees contract talks as business as usual

[Iron Ore reclaimer machine and stockpile ]
Dazman/E+ via Getty Images

BHP (NYSE:BHP [https://seekingalpha.com/symbol/BHP]) Chair and CEO Chair Ross McEwan dismissed concerns Thursday about protracted iron ore contract negotiations with China, painting discussions as business as usual [https://www.wsj.com/business/bhp-chair-says-china-iron-ore-talks-ongoing-relationship-pretty-good-44d5f967] and highlighting recent production results in which the miner said sales were broadly in line with the previous year.

"We’re in a commercial negotiation," McEwan told reporters following the company's annual general meeting in Melbourne. "That's it. We do it every year," adding that some previous negotiations with China have taken as long as six months.

BHP (NYSE:BHP [https://seekingalpha.com/symbol/BHP]) continues to sell the iron ore it mines and has a good relationship with customers in China, CEO Mike Henry said, adding that he does not foresee broader tensions between the U.S. and China affecting contract negotiations.

"You've got two very, very powerful nations just flexing their muscles," McEwan said. "It's not the first time this has happened."

Analysts say China appears to be attempting to take control over pricing of iron ore from the industry's giant miners, and China's establishment of a state-run iron ore buyer to coordinate purchases for most of China's steel mills "has changed the competitive dynamic," RBC Capital analyst Kaan Peker said in a recent note to clients.

Peker also questioned whether BHP (BHP [https://seekingalpha.com/symbol/BHP]) should consider some kind of alliance with rival Rio Tinto (RIO [https://seekingalpha.com/symbol/RIO]) to help the miners protect profits from their lucrative mining operations.

McEwan said there are no such discussions underway, although he and Henry added that the company will always consider the best way of using infrastructure, even that owned by others, to improve its operations.

In addressing how much of BHP’s (BHP [https://seekingalpha.com/symbol/BHP]) ore is currently sold using yuan, McEwan said the company makes less than 10% of its sales in a currency other than the U.S. dollar.

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