A push by steel makers to set iron ore contract prices on a quarterly basis is likely to work in favour of mining companies, an analyst says.
Contract negotiations have kicked off, with the first fall in the iron ore price in seven years anticipated due to weakening demand for steel making products.
Market expectations range from a 20 to 60 per cent cut in the iron ore contract price for the 2009 Japanese financial year starting April 1.
"Chinese and Japanese steel makers want a big cut to negotiated iron ore contract prices and in addition are seeking that all future price negotiations are fixed on a quarterly basis," CommSec market analyst Juliana Roadley said in a note.
"We would expect this would work in favour of the mining producers on an expected recovery in iron ore demand in late 2009."
CommSec expects parties will agree on a 25 per cent cut in the price negotiated on iron ore fines to just under $US70 per tonne, down from the record high of $US92 per tonne set in 2008.
The demand for iron ore has come off as China's construction eases, while Japan is officially in a recession with many construction plans now being shelved or delayed.
The iron ore price is traditionally negotiated between steel makers and the three largest iron ore producers - Brazil's Vale, BHP Billiton Ltd and Rio Tinto Ltd.
Source: Melbourne Age
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