The mining giant, which yesterday signed a new 10-year supply deal with Chinese and Japanese steel mills for its MAC iron ore, says it is on track to complete its current capacity upgrade to 110Mtpa by the end of 2004.

BHP Billiton Iron Ore president Graeme Hunt said the company was already looking at options to expand its Pilbara mining and export infrastructure capacity beyond the 145Mtpa mark.

Surging demand for Pilbara iron ore fuelled by China's voracious steel producers and the rebound in the Japanese steel industry has spurred massive investment by BHP Billiton and rival Rio Tinto in mines and infrastructure over the past two years. In that time BHP Billiton has added nearly 40Mtpa of production and export capacity.

Hunt said at yesterday's formal signing of the Wheelarra Joint Venture agreement – committing BHP Billiton to 12Mtpa of iron ore sales over the next 25 years to four of China's largest steel producers and its existing Japanese joint venture partners Itochu and Mitsui – that the $US3.2 billion of additional contracts confirmed the value of strategic relationships formed with Chinese steel mills.

Under the new arrangement, BHP Billiton will supply a further 12Mtpa of MAC Marra Mamba ore to its Wheelarra JV partners. MAC ore is produced at the company's Area C mine, 120km north of Newman. Opened in October 2003, the mine is already producing more than 20Mtpa of iron ore.

The original 12Mtpa of Wheelarra JV supply is coming from BHP Billiton's Mt Newman operations.

“We were always confident that the agreement would underpin a strategic relationship which would grow beyond the sales contracts for the Mt Newman iron ore,” Hunt said.

“This relationship will also ensure BHP Billiton maintains its share of the growing Chinese iron ore market.”

Chinese steel mills participating in the Wheelarra JV are 40-year-old Maanshan Iron & Steel Co (MAGANG), privately owned Jiangsu Shagang Group (SHAGANG), iron ore and steel producer Tangshan Iron & Steel Group (TANGGANG) and Wuhan Iron and Steel Group (WUGANG), the latter said to be challenging Baosteel for the mantle of China's largest steel producer. WUGANG is reportedly having merger talks with TANGGANG.

The four are among China's fastest-growing steel companies, having made significant investments in production facilities over the past five years.

BHP Billiton's Hunt indicated the current – and likely continuing – tightness in iron ore markets as supplies were stretched to meet rampant demand in Asia, augured well for further significant price increases in 2005.

Western Australian Premier Geoff Gallop said at yesterday's signing China had become the state's second biggest bilateral trade partner, behind Japan. Two-way trade between China and WA was now worth $4.6 billion a year.

Gallop said huge investment in Pilbara iron ore production and export capacity was delivering substantial economic benefits to the state.

The population of regional hub Newman has swelled by 1000 over the past 18 months as construction work has built, and at least a further 150 jobs are likely to be created by new BHP Billiton expansion.