Short-term system for ore as prices jump 90%
Australian mining companies have regained the upper hand in the lucrative iron ore shipping market after overnight confirmation that some Chinese steel mills will pay close to twice as much for the commodity from tomorrow.
Market turnaround: Iron ore producers look to command near doubling of price
In a move expected to mark the end of four decades of annual price negotiations, two of the world's three biggest iron ore exporters are to shift customers to quarterly pricing.
BHP Billiton, the world's largest mining company and the third biggest iron ore producer, yesterday moved most of its Asian customers to a short-term price system, to take effect from April until June.
Analysts said the new prices for varying grades of iron ore were likely to have increased by up to 90% on average, mirroring prices secured by the market leader, Vale.
Vale this week locked in Japanese steelmakers for a price of about US$105 for ore with a 62% fe content, up from US$62 under the contract year which expires today.
A short-term pricing system gives the market much more fluidity and will help to avoid a repeat of the huge disparities seen in 2008, when demand fell away sharply just months after the miners secured record high prices.
It could also pull more ore off the spot market, which has been used at times by both the steelmakers and the miners when there were huge price disparities in the wake of the global financial crisis and as China's recovery began.
Spot prices were still about 15% higher than the contract rate this week.
The world's second largest iron ore producer, Australia's Rio Tinto, is said to be supportive of short-term pricing and it is expected that Rio will follow BHP and Vale into similar agreements.
