The chief executive of Australia's biggest steelmaker,...

The chief executive of Australia's biggest steelmaker, BlueScope, says the company has been casting its net far and wide to countries including India, Africa and Brazil to ensure it obtains the best prices and most flexible arrangements for the supply of iron ore to its Port Kembla steelworks, with a Tasmanian supplier in ASX-listed Grange Resources also high up in the mix.

The Australian Financial Review Weekend edition revealed on Saturday that BlueScope had been trialling batches of iron ore from Brazil and other local Australian players in its blast furnace at the steelworks as the end of a 17-year contract with BHP loomed.

BlueScope, which on Monday reported the highest first-half profit in its history since it split off from former parent BHP in 2002, is still a small player compared with the world's steel giants, but Mark Vassella said it was hellbent on extracting the best possible deals.

BlueScope is casting its net far and wide for future iron ore suppliers – having bought from Africa, India and Brazil, along with Tasmania – as a BHP contract ends on June 30. AFR

"We worked out a while ago that we were never going to compete on scale," he said.

When BlueScope de-merged it signed a 17-year contract for the supply of iron ore from BHP's mining operations in Western Australia's Pilbara region under an arrangement where more than 3.3 million tonnes of iron ore are shipped along the coast by two vessels leased by BHP which travel to Port Kembla, on the outskirts of Wollongong.

The supply contract ends on June 30 and BlueScope has been trialling various parcels of iron ore as feedstock in its Port Kembla blast furnace as it goes through the due diligence phase in preparation for its new iron ore supply agreements. Mr Vassella said BlueScope was moving to buying on the spot market, without being encumbered by a long-term "legacy" contract.

"We have a value and use model," he said. "We have been buying little bits of iron ore from a variety of players." Iron ore had been shipped in from Africa, India and Brazil, while the company was also in talks with Australian players including Rio Tinto, Fortescue Metals Group, BHP and ASX-listed Grange Resources.

Mr Vassella said the commodities market had shifted since 2002, "and no one buys on long-term contracts anymore".

Test batches

Brazilian giant Vale has supplied test batches. He said the iron ore from Grange Resources' Tasmanian mine had shown the right attributes. "We love their iron ore."

Mr Vassella said it was likely that most of the iron ore would be sourced from Australian producers after the end of the BHP contract. "I would expect going forward that the vast majority of our requirements would come from Australian suppliers."

But he emphasised that BlueScope needed to be globally competitive and would source from wherever the most keenly priced, reliable and highest-quality ore was available.

BlueScope was a steel products maker, and had no interest in operating any transport vessels itself. "We don't own ships, we don't know anything about transporting iron ore," he said. Mr Vassella said the annual intake might be up to four million tonnes, and so BlueScope wasn't a huge customer in global terms.

"We're krill in the iron ore market," he said, referring to the much larger size of competitors from China and the United States.

BlueScope had been using iron ore only from BHP's West Australian operations. The change has already attracted the ire of the militant Maritime Union of Australia as 80 maritime workers lose their jobs, with the MUA having accused BHP of an act of "corporate bastardry". Mr Vassella said there had been no particular frustration with BHP over the past few years, because the contract had been set in stone.

"We haven't been frustrated with BHP at all," he said.