Annual iron ore pricing has been challenged during the ongoing 2010 benchmark price talks. Three mining giants all show their intention to shift the yearly pricing by a quarterly one or index-based one.

Mr. Cameron Hunt, Iron Ore Index Director of Londong-based information service institute Metal Bulletin, delivered a speech on global iron ore market and  gave an explanation on iron ore price index on 6^th Steel Development Strategy & Supply-Demand Forum organized by Shanghai SteelHome on Saturday. Here are his points:

China Heats Global Iron Ore Demand; World Iron Ore Consumption Close to 1.6 Bln Tonnes

Iron ore is the biggest commodity worldwide and enjoys a 40 percent of global seaborne trades, said Mr. Hunt. At present, global iron ore consumption has approached 1.6 billon tonnes (converted into 62 percent grade fines), up 30 percent over 2005. He predicted that global iron ore trades will reach 1.05 billion tonnes and 1.16 million tonnes in the year of 2010 and 2011 respectively. He assumed that contracted price will hit 180 US cents per dry metric ton unit (equivalent to US$ 112 per tonne, FOB, 62% fines) in 2011. After hitting the peak, the contracted price will fall year after year, even drop to 116 US cents per dry metric ton unit (US$ 72 per tonne, FOB, 62% fines) in 2014, which is still higher than 2009 deal.

China is the key contributor of world iron ore consumption. In 2009, China 's iron ore spot trades took up 30 percent of global volume. China 's crude steel production was 575 million tonnes in 2009, versus 66 million tonne in 1990. Large steelmakers' production expansion was the key factor which helped China 's crude steel production increase. Amid 75 million tonnes of total crude steel output increment in 2009, large steel mills contributed 72.5 million tonnes.

On the basis of scrap steel supply tension in China (even the whole world), the country's iron ore imports explode in recent years, for instance 628 million tonnes in 2009 compared to 2008' s 445 million tonnes.

Cameron Hunt believed that iron ore supply will be lower than demand in the future years. Iron ore price has the rising room, estimated to hit US$ 200 per tonne (CIF, China ), equal to the level in May and June of 2008.

Mr.Cameron Hunt, Iron Ore Price Index Director of Metal Bulletin

Traditional Annual Pricing Leaning to Spot-linked Mode

As Cameron Hunt introduced, traditional annual pricing could not reflect the market and is doomed to be replaced gradually. Recently, three miners have announced to choose a shorter term pricing mode, and traditional annual pricing has been shifting to quarterly or index-linked one.

Shorter term pricing badly needs one sound spot pricing system, and Metal Bulletin Iron Ore Index (MBIOI) comes to being naturally. The MBIOI is a tonnage weighted calculation of transactions normalised on iron content and freight to 62% iron content, CFR Qingdao, China. Normalisation curves are developed in house and based on value-in-use data for different material chemistries, which are updated every three months. The Index includes mechanisms to create a balance of input across all market participants, and to exclude outlier data.

Cameron Hunt introduced that the iron ore prices collected by SteelHome, an independent website, are employed to work out MBIOI.