Chinese benchmark iron ore prices under the new round of negotiations may vary with the three biggest ore miners according to ore quality, freight cost and demand according to Mr Shan Shanghua secretary general of China Iron & Steel Association.
Mr Shan emphasized that the ore suppliers have to agree that the new contract will take effect from Jan 1st rather than Apr 1st, the start date of the Japanese fiscal year. Iron ore prices have historically been negotiated annually in closed door talks between individual iron ore miners and their customers in Asia and Europe and, once one set of agreements is concluded, the other miners generally follow with similar arrangements.
Baosteel, representing Chinese steel mills, have already carried out several rounds of negotiations with Big Three and reports suggest that the price ranges are all within the expectation of Chinese side.
Mr Shan said that this year Australian ore miners deviated from the traditional benchmark iron ore pricing system by establishing a premium for their products after Vale had set prices with Asian steelmakers, the largest iron ore consumers in the world. BHP Billiton is keen to replace the benchmarking system with a pricing system based on spot iron ore indexes. The company has offered discounts on iron ore price as of January 1st if Chinese mills agree to switch to index based pricing system.
However, Chinese mills won't accept the index system, since the mills would have no idea how much they would eventually pay for the contracted tonnage.
Source: Steel Guru
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