Thursday, March 26, 2009

DB Sees End To Iron Ore Benchmark System

Deutsche Bank has predicted that the annual iron price benchmark contract system may be scrapped as producers seek individual arrangements.

Mr Peter O’Connor, an analyst at Deutsche Bank, said that “The stress on the benchmark system has never been greater. There’s been a 50% increase in spot sales from Australian producers in the past 6 months as buyers renege on contracts.”

Cia Vale do Rio Doce said last month that it wouldn’t seek to be the price setter this year. Vale has traditionally been the first iron ore supplier to set its benchmark price with steelmakers, establishing the basis for settlements by other miners in the international market.

In mid-2008 after a surge in demand, Australian producers BHP Billiton Limited and Rio Tinto Group achieved price increases of 85% or higher for their ore, exceeding the 65 to 71% gained by Vale earlier in the year.

BHP is also participating in off-exchange trading for iron ore offered by Credit Suisse Group and Deutsche Bank. The banks’ trading platforms handle swaps with initial maturities as far out as December 2009 that are settled in cash each month against an iron-ore index published by Metal Bulletin.

Source: Steel Guru

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