Japanese steelmakers and iron ore miners have reached a tentative deal to adopt short-term contracts linked to the spot market, ending the decades-old annual benchmark system, the Financial Times said on Monday. "There is an understanding on both sides to move to quarterly pricing," the newspaper quoted a senior executive involved in the talks as saying.
"The negotiation is no longer about annual contracts." The executive also said a final deal could be settled within weeks rather than months. Talks between leading iron ore miners like Australia-based BHP Billiton and steelmills in Asia to agree on an annual price for iron ore for the current year began in late 2009.
Steelmaking sources in Asia told Reuters that talks had moved towards quarterly pricing, but negotiations are continuing. A metals trading source in Australia said Japanese steelmills agreed to the change because they are more concerned with supply security than prices and ready to concede annual contracts to guarantee tonnages over 12 months.
Miners have pushed for several years to move away from an annual benchmark price system, which evolved in the 1970s and 1980s with the emergence of Japan as a steel superpower. But the explosion of China's steel sector, growth of the spot market and a spate of Chinese defaults on contracted material two years ago means the benchmark is less relevant, miners say.
Both BHP and Rio Tinto in Australia declined to comment on the FT article or questions on whether a tentative deals have been reached with Japanese steelmills to price iron ore quarterly. Spot iron ore prices are trading at twice the level of the 2009 benchmark. A move towards quarterly coking coal contracts was announced earlier this month and analysts expect iron ore to adopt a similar system.