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Updated: April 9, 2010 17:06 IST

Rio Tinto supports end to annual ore pricing

AP
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In this photo taken on April 2, 2010, inspection and quarantine officials take samples of iron ore imported from Australia, at a port in Rizhao, in east China's Shandong province. File photo: AP.
In this photo taken on April 2, 2010, inspection and quarantine officials take samples of iron ore imported from Australia, at a port in Rizhao, in east China's Shandong province. File photo: AP.

Rio Tinto PLC said on Friday it is moving to quarterly pricing of iron ore contracts, joining its fellow mining companies in a controversial switch that signals the end of annual pricing.

The Anglo-Australian miner said its decision reflects a structural shift in the market away from benchmark annual pricing.

Mining companies have moved to the shorter contracts to capitalize on record world demand for iron ore despite opposition from buyers who fear they will lead to a series of price rises over a year.

The world’s two other major miners, Brazil’s Vale SA and Australia’s BHP Billiton Ltd. have already agreed quarterly contracts with some Asian steel mills. Iron ore is the key material in steel making.

China, the biggest importer of iron ore from Australia and Brazil, has been the most vocal opponent, calling for the old annual benchmark to be retained.

The China Iron and Steel Association earlier this month asked domestic steel firms and traders not to import iron ore from the big three companies for two months to protest “monopolistic behaviour.”

Sam Walsh, Rio Tinto’s Chief Executive of Iron Ore, said that the company’s move was “in line with our recent comments that benchmark pricing only works if it reflects market fundamentals, otherwise the system would need to change.”

The old yearly system came under scrutiny as spot - or open market - prices soared above last year’s annual fixed price.

The most recently agreed contracts have been priced at around 90 percent above that fixed price.

Rio Tinto said that its negotiations with customers are ongoing and declined to provide further details on pricing.

The arrest last summer of four Rio Tinto employees in Shanghai, including Australian citizen Stern Hu, on charges linked to last year’s price negotiations highlighted the difficulties of dealing with the state-dominated industry, and some analysts believe Beijing’s tactics could backfire.

Hu and three Chinese citizens pleaded guilty to charges of industrial espionage and bribery and last month received prison terms ranging from seven to 14 years.

Keywords: Mining


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