Price discounts for lower grade iron ores are here to stay, according to BHP Billiton marketing president Mike Henry, despite the protestations of smaller miners like Fortescue Metals Group and Atlas Iron.
Lower grade iron ores have traditionally sold for between 93 per cent and 87 per cent of the benchmark iron ore price in recent years, but in the June quarter that pricing discount was significantly wider.
Fortescue and Atlas produce lower grade iron ores, and both reported received prices that were weaker than expected. Fortescue revealed a price discount of 20 per cent below the benchmark price in June.
The two miners have sought to reassure investors the wider discount is temporary, but speaking on Tuesday Mr Henry was not so sure.
''Without wanting to call the exact differentials I think the dynamic of wider spreads than we've seen in times when the market was tighter is absolutely here to stay,'' he said.
''As the steel industry in China moves towards higher productivity and wanting to make use of their more productive, higher-volume blast furnaces, they are more than likely to want higher quality product and be willing to pay a premium for that relative to the lower quality iron ores.''
The comments are at odds with a statement made by Fortescue earlier this month, when it predicted the traditional discount levels would soon resume.
''Fortescue expects the iron ore market to rebalance in the short term as higher cost production leaves the market, flattening the global cost curve and stabilising the price,'' the company said on July 11.
Atlas Iron managing director Ken Brinsden on July 10 also predicted a reversion to traditional price discounts.
Mr Henry said BHP's long-term view of the iron ore price had not changed, despite the recent dip below $US100 per tonne.
''We are not reading too much into the sharp dip that occurred or the slight rebound that we are seeing currently. We just see it as part of a long-run trend where you are going to see volatility around the mean but that mean is going to be declining over time,'' he said.
Iron ore was fetching $US96 a tonne on Monday, after $US98 a tonne last week.
Mr Henry said BHP continued to expect prices for thermal coal and coking coal to improve in the mid to long term, but said the two commodities would face difficult markets in the near term.
Mr Henry was speaking after BHP donated a further $6 million to an environmental program called Bush Blitz, which has helped discover more than 700 new species of plants and animals.
BHP will report its June quarter results on Wednesday, and most analysts expect it to easily beat its full-year iron ore export target of 217 million tonnes, and roughly meet its full year copper production target.
BHP shares closed 29¢ higher at $38.51.
