Feb. 23 (Bloomberg) -- Shares of BHP Billiton and Rio Tinto Group, two of the world's largest iron ore producers, rose on optimism they may win record price increases for iron ore after rival Cia. Vale do Rio Doce yesterday raised prices 71.5 percent.

Brazil's Vale, the world's largest iron ore producer, yesterday raised annual contract prices by a record for Nippon Steel Corp. and JFE Steel Corp., Japan's two biggest steelmakers. BHP Billiton and Rio Tinto will resume talks today with Japanese steelmakers, the Tex report industry newsletter reported today.

Vale, BHP Billiton and Rio Tinto control more than three- quarters of global iron ore exports and prices agreed with the Japanese steelmakers set a global benchmark. Surging demand from Chinese steel mills has caused shortages of raw materials.

``Rio and BHP haven't announced their settled prices yet, but there's obviously upwards pressure coming through on prices,'' said Lee Mickelburough, who helps manages the equivalent of $13.3 billion at Perennial Investment Partners in Melbourne, including BHP and Rio shares. ``We suspect they may do even better.''

Shares of BHP Billiton rose as much as 54 cents, or 3 percent, to A$18.28, and traded at A$18.27 at 12:24 p.m. Sydney time on the Australian Stock Exchange. Rio Tinto shares rose as much as A$1.56, or 3.5 percent, to A$45.38 and traded at A$45.11.

BHP Billiton spokeswoman Tania Price said the company won't make a comment until it has concluded the majority of its price talks. Rio Tinto spokesman Ian Head declined to comment.

Merrill Lynch & Co. said yesterday it would raise earnings estimates for Melbourne-based BHP Billiton and Rio Tinto for fiscal 2005 by 19.6 percent and 3.1 percent respectively should the two companies obtain the same price increases.

``It shows the ongoing demand is strong and for BHP and Rio Tinto it will be a fantastic result,'' said Michael Birch, who holds BHP and Rio shares for the equivalent of $102 million he helps manage at Wallace Funds Management in Sydney. ``We're going to see significant earnings upgrades,'' should BHP Billiton and Rio match the increase in prices, he said.

Iron ore producers have been asking for increases of between 50 percent and 90 percent. This will be the third straight year that iron ore prices have increased, following on a 18.6 percent gain last year.

Higher Still

Australian iron ore producers may ask for a higher price to narrow the gap with Brazilian shipment prices, said Goldman Sachs JBWere analysts Malcolm Southwood and Paul Gray in a Feb. 22 report.

Japanese steelmakers pay more for Brazilian iron ore due to freight charges, as Brazil is almost three times further away from Japan than Australia. Macquarie Bank Ltd. in January said Australian iron ore producers may more than double the price of coking coal to narrow the gap for shipment charges.

London-based Rio Tinto got 20 percent of its net income from selling iron ore in 2004, and BHP Billiton's carbon steel materials unit, which sells iron ore, coal and manganese, accounted for 24 percent of first-half profit.

Shares of BlueScope Steel Ltd., Australia's largest steelmaker, fell as much as 35 cents, or 3.5 percent, to A$9.58 and traded at A$9.59 at 11:43 a.m. Sydney time. Shares of OneSteel Ltd., the second-largest steelmaker in the country, fell 6 cents, or 2.1 percent, to A$2.76.

``It's good for the iron ore producers, but not good for BlueScope Steel and other steelmakers,'' said Perennial's Mickelburough.

To contact the reporter on this story: Tan Hwee Ann in Melbourne at hatan@bloomberg.net

Last Updated: February 22, 2005 20:36 EST