Companies

Steelmakers victim of iron ore monthly pricing

By Song Jingli (chinadaily.com.cn)
Updated: 2011-06-23 16:44

Rio Tinto has decided to adopt a monthly iron ore pricing mechanism, shifting from previous quarterly pricing, Reuters reported Wednesday.

Steel Business Briefing (SBB) TSI index manager for China Han Xun said that prices for both raw materials and steel products have this year fluctuated more than usual, posing greater risks, the China Business News (CBN) reported.

Miners prefer a monthly pricing mechanism as a way to cut risks which may be incurred as quarterly prices can diverge too much from spot prices, he added.

Related readings:  Major steel producers continue to cut prices  China's steelmakers diversify amid profits squeeze  Outlook for domestic steelmakers turns cloudy  Freight charges are the focus for steelmakers

Rio Tinto told CBN that its pricing mechanism is adjusted according to the market and it may move to an even shorter-term pricing model if the market needs it.

"This undoubtedly is no good for Chinese steel mills," Xu Guangjian, an analyst with Umetal.com, told CBN.

Wang Jianxin, the chief analyst at the Guofeng Iron and Steel in Tangshan, Hebei province, agreed with Xu, saying the monthly pricing does all harm and no good to Chinese steelmakers. He said Chinese steelmakers will be in an even worse situation as their production costs and profit margins will both be controlled.

Wang said the iron ore prices may have entered a downward channel as foreign mining companies scale up their capacity quickly while demand by steelmakers is declining.

A monthly pricing mechanism is the best way for mining companies to optimize profits while iron ore prices are still high, Wang said.