A new era of global iron ore pricing?

17:50, April 12, 2010      

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Although China repeatedly voiced support for the iron ore benchmark system, analysts believed that a more flexible pricing system seemed unavoidable.

The world's three iron ore giants -- Vale of Brazil, Rio Tinto and BHP Billiton, which accounted for 68.5 percent of the global iron ore shipments in total -- have all announced their initiatives to shorten the long-term agreements in international iron ore prices, indicating the end of the decades-old annual benchmark pricing system.

Although details for the new system was not clear yet, analysts said quarterly-based, indexed or spot pricing would all be possible.

The development trend was a shorter-term-based pricing system, and it seemed China could not avert it, said Zhang Lin, an analyst with the Beijing-based Lange Steel Information Research Center.

What does this mean for China's steel industry?

Analysts said the change would lead to a price hike in iron ore market, maximize short-run profits of iron ore suppliers and largely squeeze profit margin at China's steel mills, exacerbating the already meager profit.

"If China follows the new pricing model, it means we have to accept a nearly doubled iron ore price," said Wu Jun, marketing manager with Jiangyin Xingcheng Special Steel Corp. "We can only pass on part of the price increase to consumers."

"We are still waiting for the result of iron ore price negotiation," he said. Iron ore under benchmark pricing accounts for 20 percent of the company's total imports.


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(Editor:赵晨雁)

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