It is reported that the statement that Iron ore Quarterly Pricing Model will be substituted by Monthly Pricing Model is yet to be officially approved.
The reporter was learned from world top three Mining Giants as well as part of domestic steelmakers that, the miners haven’t officially discussed with China steelmakers about the new pricing model while Mr Gao Ruisi CEO of BHP Billiton stated that it was trying to adopt more short term pricing model but didn’t negate Quarterly Pricing Model.
He said that it was true that part customers suggested Monthly Pricing Model on iron ore market, while removing the standard pricing model was not the mainstream opinion.
Another two Mining Giants, Vales and Riotinto didn’t announce to support Monthly Pricing Model. Meantime, the reporter confirmed from two state owned and private steelmakers that the miners haven’t communicated with steelmakers on changing present iron ore pricing model.
At the beginning of every year, the rumors about iron ore pricing model will spread to the market and attract extensive attention. Some insiders indicated that it was the psychological war launched by the miners for testing China steelmakers’ affordability.
However, some views believed that iron ore pricing model gradually becoming short term will be the trend. According to Quarterly Pricing Model which was practiced since February 2010, iron ore price is calculated by the average price of spot products in three months. The price rose in Quarter 2 and Q3, but down in Q4. Compared to Annual Pricing Model, Quarterly Model only offered one month for steelmakers to arrange production plan on the basis of the new iron ore price. The Monthly Pricing Model will strengthen the steelmakers’ raw materials cost fluctuations since the Monthly Model means to adopt spot price completely.
Furthermore, the gap between associated iron ore price and spot price will be narrowed under the short term pricing model, consequently, the cost gap between state owned steelmakers and private steel mills will become narrower. In terms of cost, private steel mills with flexible system and low cost will present more and more advantages in market competition.