Bhp Billiton: Iron Ore for China

BHP Billiton: Iron Ore for China

1. Why would steel manufacturers and iron ore suppliers agree to minimum purchases/sales in long term contracts?

The steel manufacturers and iron ore suppliers agree to minimum purchase/sales in the long term contracts due to the following reasons

• Minimum purchase and sale agreement would guarantee certainty on behalf of both suppliers and buyers.
• Suppliers can make necessary planning and control for the exact quantity to be supplied.

2. What advantages would BHP Billiton gain by pricing to steel manufacturers on CIF (cost insurance and freight) rather than FOB basis?

3. What advantages do Chinese steel manufacturers gain by negotiating jointly with iron ore suppliers?

• When Chinese Steel manufacture negotiate jointly with iron ore suppliers, it will increase the bargaining power of china as  there are many buyers who can choose iron ore according to their needs. 

4. How can Chinese steel manufacturers improve their bargaining position relative to BHP Billiton?

If China are able to produce their own iron ore they can improve their bargaining power. As it is mentioned in the case that China has the capability to produce iron.

5. Should BHP seek the surcharge in the 2006-07 price negotiations?

No, BHP should not seek the surcharge in the 2006-07 price negotiations because the buyers i.e. the steel manufactures buy on a FOB basis so all the sellers are responsible for the shipping cost by themselves so BHP is not liable to claim for Surcharge. Similarly it is mentioned that the Surcharge is unethical and  against international practice.