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New iron ore pricing plan soon

By Zhang Qi (China Daily)
Updated: 2009-07-21 09:29

Imported iron ore being unloaded at Rizhao port in Shandong province. Spot prices of iron ore deliverty to China have increased by nearly $90 a ton thaks to soaring demand. [CFP]

Global miners and steelmakers may opt for a new quarterly based iron ore pricing system in place of the existing annual negotiations to increase the volatility of steel prices and make the system more transparent.

The new system is likely to be tested by end of the year, Wall Street Journal reported, without revealing from where it got the information.

The move comes at a time when China's steel industry is planning to revamp the iron ore import business after the detention of four employees of mining firm Rio Tinto for spying.

"It is good news for both miners and steelmakers if the new system is adopted," said Zheng Ge, steel analyst, Wangda Futures Co Ltd.

"There are indications that the China Iron and Steel Association (CISA) may accept the 33-percent cut in iron ore prices offered by Rio Tinto and BHP Billiton due to the huge demand for iron ore in China."

"In that case, China's steel industry may see profit margins decline. However, if the contract price is quarterly based, then in the short term, the cost of steel might go up and that in turn would push up prices thanks to the strong demand from property and railway sectors," he said.

Special Coverage: Iron Ore Price Talk Related readings:   Talks on iron ore rate cuts continuing  Ministry rejects steel lobby proposal  Rio employees 'held for espionage'  Rio Tinto-Chinalco $19.5B deal foiled

CISA rejected a 33-percent cut agreed to by Rio Tinto and Japanese and South Korean mills in May, and held out for a 40-percent cut. However, there were reports that some Chinese steel mills had agreed to the 33-percent cut.

Cui Jingyi, a steel analyst from Guitai Junan Securities said the big Australian miners may press for the new system, while Brazil's Vale SA may opt for annual pricing, as the spot price of Brazilian ore is more expensive than Australian ore.

"The shipment charges for Brazilian ore is higher due to the long distance despite its free on board prices being cheaper than Australian ores," Zheng said.

Spot prices for iron ore delivered to China jumped to over $90 a ton for the first time this year thanks to the climbing shipments.

Iron ore for immediate delivery advanced 4.6 percent to $91 a ton last week, the highest since October last year, according to Metal Bulletin prices.

The country is boosting shipments on the cash market because of the "breakdown" in talks for a benchmark price between steelmakers and foreign producers, according to Bloomberg. "The price system change is not something new, rather the Rio Tinto scandal might push for the setting up of a new pricing system," said Cui.

Meanwhile Australian Trade Minister Simon Crean said yesterday that Chinese authorities have not yet charged Rio Tinto Group executive Stern Hu, and have called for more details on the case.