Rio Tinto pushing for quarterly iron ore contracts

13:09, April 09, 2010      

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Australia-based Rio Tinto Group, the world's second largest iron ore supplier, announced today that the company is in talks with customers to switch to quarterly iron ore contracts.

Rio's move indicates that all three global iron ore giants (Vale SA, Rio Tinto and BHP Billiton) may abandon the annual long contract pricing mechanism for iron ore, a practice that has existed in the industry for 40 years.

BHP Billiton Ltd., the third-biggest shipper of iron ore, has also agreed to shorter-term contracts. The shift has been criticized by steelmakers.

Brazil's Vale SA said last week it has signed agreements with 97 percent of its customers to adopt quarterly iron ore price settlements.

"Rio Tinto's position reflects the recent structural shift in the iron ore market away from benchmark pricing," Rio's head of iron ore Sam Walsh said in a statement.

It is in line with our recent comments that benchmark pricing only works if it reflects market fundamentals, otherwise the system would need to change, he said.

Iron ore spot price has been increasing rapidly in 2010. According to BHP Billiton's April-June contracts, iron ore price has exceeded $130 per ton, more than double last year's benchmark.

The World Steel Association said last week it was seeking a review of the iron ore industry after annual pricing was scrapped. The market is uncompetitive because it's dominated by three suppliers, the association said.

China Iron and Steel Association (CISA) and the European Confederation of iron and Steel Industries (Eurofer) have expressed their "outrage" at the iron ore industry for ratcheting up iron ore prices.

Jia Yinsong, an official with China's Ministry of Industry and Information Technology (MIIT), said last month that China hopes to maintain the current iron ore pricing mechanism and to keep the iron ore prices at a reasonable level.

Jia said that the current mechanism will benefit all parties in the long run. "We oppose any forms of monopoly not in line with the market rule."

By People's Daily Online


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