Both Rio Tinto and BHP Billiton have been buoyed by news that Vale, the Brazilian mining giant, has settled this year's iron ore prices with key Japanese and South Korean steel mills.
The negotiations on iron ore prices take place every year, and determines the price paid for the commodity for the year to come.
Vale has settled on a 65% increase from last year. Both Rio and BHP are still in negotiations for iron ore prices - a big part of their businesses.
But analysts, and clearly the market, expect they will negotiate an even bigger increase. Shares in Rio are up 187p, or 3.4%, at £56.80, and BHP has risen 58p, or 3.7%, to £16.09.
Rio today said it was still in negotiations and that it had taken note of the Vale settlement. It added that it would continue to negotiate to obtain a freight premium to reflect its proximity to Asia and its major customers.
Michael Rawlinson of Liberum Capital said a freight premium would be "an unprecedented but not entirely unexpected development that could mark the end of the 'one price fits all' settlements of the last few decades".
Current freight rates from Brazil to China are $80.40 a tonne versus $33.48 a tonne from Australia to China. So if Rio and BHP also got a 65% increase, their customers would be paying significantly less for their ore than for Vale's.
Rawlinson says: "Were Rio to recover all of the $46.92/t freight differential to China, this would be equivalent to it securing a total year-on-year price rise on contracts of $81.40/t to a massive 154%. Clearly recovering even a small part of the freight differential is very important for Rio and BHP."
Analysts at Merrill Lynch say that Australian producers, which include BHP and Rio, could secure a 71% increase. "Although the grade of Australian iron ore is, on average, marginally below that of Vale's - Australia's producers will probably attempt to capitalise on the seaborne market's current extreme tightness in order to secure price terms similar to those of Vale's Carajas deal."
