Bloomberg reported that Cia Vale do Rio Doce is adopting a more flexible iron ore pricing policy, joining BHP Billiton Limited and Rio Tinto Group in steering away from the benchmark system.
Mr Fabio Barbosa CFO Vale said his company is ready to explore alternative ways to set the price for the steelmaking raw material. Under the current system, in place for about 40 years, iron ore producers and steelmakers fix prices in annual negotiations.
Mr Barbosa said that “We prefer benchmark but the market has determined this isn’t the only system available. We’re ready to explore all possible alternatives if that’s what the clients want.”
According to Mr Marius Kloppers CEO of BHP, ending the benchmark will reduce tension between buyers and steelmakers by making pricing more transparent and may help encourage more production. Rio and BHP said that last year they won’t sign new supply contracts based on benchmarks.
Mr Ian Ashby president of BHP’s iron ore unit said that a two-tier market has developed in China, which overtook Japan as the biggest buyer of iron ore in the past three years with one price based on benchmark and the other on spot. The spot market has grown faster than benchmarked iron ore.
He said that “The growing spot market, together with the lengthy annual negotiations which have produced recent ambiguous outcomes, has started to break down the traditional benchmark system.”
Mr Peter Arden Melbourne based analyst at Ord Minnett Limited said that “It will be for the benefit of the industry. Producers have to find a way to help steel companies adjust.”