Relief for steel firms as Australian giant drops demand for extra freight payment Australian iron ore giant BHP Billiton has backed down from its demand for a shipping surcharge on the raw material in this year's talks with mainland steel mills. The retreat is welcome news for China, which is plagued by having to pay more for foreign resources to sustain its economic growth. BHP said yesterday it had settled for a 71.5 per cent rise in iron ore prices with 'a number of' steel customers for the 12 months to March next year. A spokeswoman said they included steel producers in China and Japan, but she declined to name them. Baoshan Iron & Steel, which negotiates on behalf of mainland steel mills, confirmed the agreed price rise in a statement. BHP had wanted Chinese and Japanese buyers to pay as much as 115 per cent more for its ore to reflect lower costs on shipping from Australia than those on ore exported from Brazil. The 71.5 per cent increase is the same as that agreed between Asian buyers and Australian miner Rio Tinto and Brazil's Companhia Vale do Rio Doce (CVRD) more than a month ago. However, it is still a far cry from the 20 to 30 per cent the Chinese steel mills had been expecting this year and is likely to add at least US$6 billion to the country's iron ore imports for the year, excluding freight, which is even more expensive than the ore. BHP had justified asking for the surcharge by saying it cost US$15 to US$20 less to ship a tonne of iron ore from Australia to China than from Brazil. The company's climbdown came after high-profile protests by mainland steel mills and state press reports that called the demand 'unreasonable', saying it 'contravened normal international practice'. Premier Wen Jiabao waded into the dispute by calling for measures to contain ore price rises and over-investment in the steel-hungry infrastructure and property sectors. Despite its failure to extract more money from the steel producers, the president of BHP's iron ore operation, Graeme Hunt, said: 'The [freight differential] issue is still relevant and we will continue to discuss it with our customers in the year ahead.' Analysts said the issue had cost BHP in terms of its relations with its biggest customers. 'The episode has cost BHP some lost credibility ... it seems that BHP has underestimated the level [of] backlash ... and the amount of public negative press,' wrote Daiwa Securities' Australian-based analyst, Mark Pervan, in a research note. 'It has been an embarrassing public relations exercise for BHP, which will now have to try to mend bruised relations with its important iron ore customer base.' As BHP, Rio Tinto and CVRD control more than 80 per cent of the world's international seaborne iron ore trade and buyers in a nation, or even among nations, generally form alliances in negotiations, long-term relationships are important. Last year, China - the world's largest iron ore importer - saw its import volume rise 40.48 per cent to 208.09 million tonnes. Australia accounted for 37.6 per cent of the amount, India 24.1 per cent and Brazil 22.1 per cent. Analysts expected ore price increases will moderate substantially next year as China's steel demand growth is expected to slow.