Reuters reported that Swedish based consultancy Raw Materials Group said it expected the London Metal Exchange to introduce an iron ore contract within a couple of years.
Mr Per Storm MD of Raw Materials Group said "It has been in discussion for quite a long time. It will take a year or so at least."
He expected to see a move from annual contracts negotiated by the big three iron ore producers BHP Billiton, Rio Tinto and Vale with steel mills towards more spot trading.
Mr Per Storm said "There will probably not be a 100% spot market as each mine is different from another. There will probably be a spot price for one of the bigger suppliers such as BHP Billiton that would act as reference price.”
Mr Anton Lof a research analyst at Raw Materials and a specialist in the global iron ore trade said the increase in the number of iron ore producers in the market, in particular smaller producers, means that it makes sense to have an LME contract rather than lots of individual talks.
He said that "An iron ore contract would enable smaller iron ore companies to hedge output."
The LME plans to set up an Asian operation, its first overseas move, with the opening of an office in Singapore in April and there is market speculation that LME Asia will work on setting up a traded iron ore contract. It does not have a traded contract, but it will have a facility that allows members to send iron ore through the clearing house.
Mr Chris Evans head of business development at the LME said "With our presence in the steel market through our billet contract and also molybdenum, nickel and zinc, it makes sense to see what other steel industry specific products we can add."
He said that "We could look at a traded contract, but I think that point is some way off.”
BHP earlier this month predicted growing liquidity in international iron ore markets will force its customers to dump annual contract pricing and accept spot based trading.