UMETAL-CHINA, The top three iron ore index providers are in talks with Chinese steel mills over use of their own indices.
More and more small and medium-sized mining companies such as FMG began to opt for quarterly pricing system after it was again adopted by the mining giants in the second quarter.
Actually, Chinese domestic advisory bodies also launched their own indices for the steel making material since last year. For instance, Mysteel combined the prices of imported iron ore and domestic iron ore. The site calculates import prices by using a weight average between spot iron ore from South Africa, Indonesia and India and benchmark iron ore. The domestic price is computed based on settlements of spot iron ore produced in local regions.
"A mix of imported iron ore and domestic iron ore makes much difference compared with overseas indices," Mysteel vice director Yu Liangui told reporter, reasoning that domestic iron ore accounts for 30-40% of consumption by Chinese steel makers.
However, such indices are hard to be recognized internationally. An overseas index provider pointed out that mining companies in other countries do not believe Chinese iron ore index at the moment, while many overseas indices are easy to be approved as they have been used in the financial derivative market.
SteelHome and Metal Bulletin co-launched the MBIO index by collecting prices from mining companies and traders. Moreover, some settlement prices between mining companies and steel makers in China are offered by SteelHome.
"The iron ore pricing system is going through a change. As a leading iron and steel web site in China, we must influence the system by ourselves so as to reflect actual demand and buying of domestic steel makers," Wu Wenzhang said. "The trading prices settled between large steel makers and mining companies are relatively stable in China and thus this kind of price should not be absent from the pricing system."