[miningmx.com] — Top global iron ore miner Vale has told Reuters it will stick with quarterly pricing for sales to its steelmaker customers, sparing them for now a more market-sensitive system which they have fiercely resisted.
Its rival BHP Billiton is already selling some iron ore on a shorter term monthly basis and would like its contract prices to move even closer to the daily market price, a spokesman for the company said.
Vale, along with the world’s top miner Anglo-Australian BHP Billiton and Rio Tinto, dumped a decades-old annual benchmark system and moved to quarterly pricing in 2010.
The cumbersome yearly negotiations suited steel makers, shielding them from short term price swings in feedstock ore.
But the system collapsed as high profile talks between the top miners and Chinese steelmakers became increasingly intense. China imprisoned Rio Tinto’s iron ore head in charge of price negotiations last year for accepting bribes and stealing commercial secrets.
“Vale is selling all contracted volumes on quarterly pricing. It is very happy with the quarterly prices and has no intention to switch to monthly prices at this time,” Vale’s global marketing director Pedro Gutemberg told Reuters.
“We believe the 3-month period is good enough to avoid major gaps with actual market prices and, on the other hand, smooth volatility of the monthly period.”
Steelmakers welcomed Vale’s decision.
“It is the right decision not to move further down this road,” said Axel Eggert, head of communication for the European steelmakers association Eurofer.
“Monthly iron ore pricing is negative for the steel industry and for its customers. It would be even worse (than quarterly pricing) as it would increase price volatility further.”
But quarterly pricing could be a short-term compromise, analysts say. The industry may eventually move to even shorter index-based pricing mechanisms or even futures contracts.
VARIED PACE
While Vale avoids further stress form major steelmakers, BHP Billiton, already pricing part of its iron ore on a monthly basis, would like contracts to move even closer to daily spot prices.
“For all our products we would like to receive the price of the day every day,” a BHP spokesperson said.
“BHP Billiton has a mix of contracts on various quotation periods as well as some spot sales. These include contracts priced on a monthly or quarterly basis, based on the average index price of the quarter or month, respectively, in which the shipment is due to take place,” he added.
Rio Tinto is matching Vale in the pace of its pricing strategy. It intends to go into 2011 using the same quarterly system it used in 2010, said Sam Walsh, executive director and chief executive Iron Ore, during an investors seminar held in London.
Anglo American’s Kumba Iron Ore, said it is also sticking to quarterly pricing for now but changes are possible with the agreement of customers.
“We have moved 100 percent of our contracts to quarterly prices and this is where we are,” Kumba’s head of commercial Timo Smit said.
“We would like to engage our customers to see what could work for both of us.”
Australia’s third largest iron ore miner Fortescue Metals Group as asked Chinese steel mills to pay an average of Platts index prices over the five days after cargoes have arrived at ports, mills and traders told Reuters.
Europe’s top producer, Swedish state-owned miner LKAB, said it is likely to stick to annual contracts.
Vale and Rio Tinto use a quarterly system in which prices are decided by a three-month average of the Platts North China 62% FE CFR index IODBZ00-PLT beginning four months before the relevant quarter.
