Economic Observer Newspaper reported that the focus of iron ore negotiations between Chinese steelmakers and global iron ore producers this year will shift to freight price stabilization to keep steelmakers' costs low.
The report said China steel mills and its steel lobby body, the China Iron and Steel Association have accepted the mechanism of quarterly iron ore pricing. In January, the Australian miner BHP Billiton Ltd moved to a monthly set-pricing system after three mining companies abandoned a 40 year tradition of annual iron ore negotiations in March 2010 and turned to a quarterly pricing mechanism linked to iron ore indexes.
The CISA has previously insisted that Chinese steel mills should have long term iron ore prices which could stabilize their raw material costs.
The report said this year negotiations are no longer about whether to accept quarterly pricing but have shifted to freight costs. Shipping costs from Australia to China can vary widely from USD 6 to USD 50 per ton.
The big three miners, BHP, Vale SA and Rio Tinto Group currently offer FOB prices to Chinese steelmakers while the world's major three iron ore indexes calculate CFR prices using a formula based on the average spot market price over the previous quarter.
According to historical records, ocean freight costs will fall before the annual negotiations, but once they are completed, the price is likely to rise dramatically.
( Source: www.steelguru.com )