A
steelmaker in northern China has bought a 160,000-tonne cargo of iron ore
based on the Metal Bulletin Iron Ore Index (MBIOI), amid a push from
steelmakers for more flexibility in pricing terms.
“It was a deal with Rio Tinto about 10 days ago. We demanded that the
settlement price should be based on the monthly average of MBIOI in
December,” a steel mill source in northern China said.
The collapse in iron ore prices from early October encouraged steel mills
to demand different pricing arrangements from suppliers, not only in the
reference period used for pricing contracts, but in which reference to
use.
“As the iron ore market has now weakened, Chinese steel mills have more
voice over prices, including which index they want to use for price
settlement,” the source at the mill said.
Iron ore prices on the Metal Bulletin Iron Ore Index fell just over a
third from September 7, slumping to a low of 118.03 on October 28. The
prices has since only partly recovered, settling at $139.91 on December 7.
After the September-October price dip, steelmakers demanded for more
flexible terms, especially a change in the reference period to be used.
On Wednesday, Vale underlined the scope of the shift from lagging
quarterly contracts — based on an average of spot prices in an
earlier period — to “live” contracts based on spot prices
prices in the current quarter.
Around 80% of its customers have shifted to current-quarter pricing,
Vale’s ceo Jose Carlos Martins said at a press conference in London on
Wednesday.
Steelmakers such as Taiwan’s China Steel, which have moved to a
current-quarter system, are likely to get a price cut of around 20% by
doing so for the fourth quarter.
Iron ore pricing methodology is now "between the individual steel
mill and the miners", an official from China Steel said.
“Negotiations with Rio Tinto and BHP Billiton are still ongoing, and we
hope we could finalize prices soon, because it is better to lock in the
cost,” the source said.
The average MBIOI price for the current quarter is $142.32 so far,
compared to $138.31 in the Jun-August period used for lagging prices.
In mainland China, most mills are yet to finalise fourth-quarter iron ore
prices but most have switched to current-quarter pricing.
“Chinese steel mills are also in talks with Vale on fourth quarter price
settlement, although it may be easier just to wait until the quarter is
over and then calculate based on the spot iron ore prices during the
quarter,” a Vale customer said.
“With Australian miners, we are negotiating case by case on each cargo
of contracted iron ore for the fourth quarter,” another steel mill
source said.
Source: Metal Bulletin |
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