Iron ore spot sales will keep rising amid uncertainty over the future of the annual benchmark pricing system, Clive Murray, chief executive office of London Commodity Brokers Ltd., said today.
“The benchmark system as we know it now has got a limited lifespan,” Murray said in an interview with Bloomberg Television today. “The spot component of the pricing system will certainly increase. As we go forward and people feel comfortable using a spot system, it will take precedence.”
The China Iron & Steel Association in July accused mining companies of encouraging “speculative” prices by increasing iron ore sales on the spot market, urging producers including BHP Billiton Ltd. and Rio Tinto Group to agree to a 35 percent price cut in annual contracts. Last year, spot sales accounted for about 30 percent of iron ore trades in China, compared with about 60 percent in 2009, Murray said.
China’s iron ore imports surged to a record this year, hurting the association’s bid to negotiate a contract price cut bigger than the 33 percent offered by BHP and Rio.
“There is demand for iron ore in China for domestic consumption,” Murray said. “We opened the market at the beginning of 2009 around the mid-$60s, we’ve been down to the low $50s, we’ve been above $110 and now we’re down to the $80s. The market is waiting for some direction of where we go next.”
BHP Billiton, the world’s largest mining company, in July agreed to sell 30 percent of its iron ore through a mix of cash, quarterly and indexed pricing, breaking a 40-year tradition of annual contracts.
“There are still a lot of iron ore reserves at the ports but most of that is probably held at above $100,” Murray said. “The material that’s coming in now is a lot cheaper so people are buying the material that’s available and not drawing down on the stocks at the ports.”
Murray formed London Commodity Brokers is 2005 to cater for over the counter trades in coal, iron ore and derivatives.
Source: Bloomberg
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