Chinese spot iron ore prices have surged to a four-month high, boosting BHP Billiton and Rio Tinto's fortunes as annual contract price talks with China head into uncharted territory.
Metal Bulletin-posted spot prices of iron ore at Chinese ports rose $US4 to $US81.50 a tonne in the past week, climbing above the equivalent price Rio and BHP recently negotiated with their other Asian customers.
The China Iron & Steel Association, which is the sole Chinese negotiator with BHP and Rio in this year's talks, has bucked convention by refusing to bow to a 33 per cent discount on benchmark iron ore fines contract prices agreed to by Japanese, Korean and Taiwanese steelmakers.
Instead, and despite opposition from individual Chinese steelmakers, CISA is holding out for a 40 per cent cut. If the talks, which started on April 1, stretch into July for the first time, the stakes will become higher. It will mean that, from Wednesday, some contracts can be dissolved, replacing the security of contracted ore with the volatility of the spot market.
CISA has said it is prepared to draw talks out beyond June 30, further putting at risk the traditional benchmark system. BHP is keen to kill off the traditional annual price negotiations and replace them with contracts based on price indexes.
Source: The Australian
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