Big three fix 48% of capesize ships since November

Australian miners BHP Billiton and Rio Tinto, along with Brazil’s Vale, produce more than two-thirds of the  world’s seaborne iron ore, which last year reached 890m tonnes.

However, the dramatic end to the five-year shipping supercycle and the collapse of freight rates have  signalled major changes to how the iron ore is transported and its selling price.

Instead of selling free-on-board (FOB) iron ore direct to steel mills, which then pick up the transport costs, the miners are now selling more ore at cheaper spot prices and organising freight themselves.

All declined to comment about their sales and marketing strategies but all have disclosed in recent filings that around 15%-25% of their iron ore is being sold either on the spot market or at a discount to their normal fixed FOB price.

London broker Howe Robinson said that from April to September 2008, the three miners accounted for 22.5% of all reported capesize spot fixtures in four key sectors of the capesize market.

Between October and March, that figure jumped to 48%.

“In dry bulk market terms this has become an  unprecedented dominance,” Howe Robinson director of research Peter Kerr-Dineen said.

“Obviously a host of other players have been forced to exit the market.

"This is a strategic shift of historic proportions and it is one which is largely reactive.”

The three mining groups chartered 69 capesize vessels in April to ship iron ore to China, with Vale fixing 25 ships in April and 19 in March.

Rio Tinto booked 20 capesize vessels to China in April, while BHP Billiton took 24.

So far this month BHP has fixed 11 capesize vessels, Vale has chartered two and Rio Tinto nine, based on fixtures reported to the Baltic Exchange.

Howe Robinson said lower freight prices following the collapse in rates had changed the historical pricing mechanism for iron ore.

Mr Kerr-Dineen said the major miners had clearly decided to tighten their grip on the spot market.