Former iron ore pricing was unsustainable - Mr Gilberto

Thursday, 07 Jul 2011

Dow Jones cited Mr Gilberto Cardoso head of iron ore market intelligence at Anglo American Luxembourg as saying that the old way of pricing iron ore, based on annual contract negotiations between iron ore producers and steelmakers, was unsustainable for some time.

Mr Gilberto Cardoso told Terrapinn iron ore conference in London that under the old system, miners lost out on spot market price upside and the system failed to provide insurance to producers when prices fell, with buyers deferring or reneging on contracts and miners selling to the spot market to maintain volumes.

He said that "Until recently, the annual benchmark pricing system was the main benchmark used by the iron ore producers and steelmakers. The system was unsustainable for a long time. The new system continues to evolve. The market is still in a transition phase and pricing mechanisms are still evolving."

Mr Cardoso said the marginal spot ton sets the price of iron ore, and that China buys the marginal sea-borne ton. He said that the new system has required working capital management by producers, which has created more volatility, while steelmakers have upped hedging programs, pursue price settlement on a project basis and enter short-term negotiations.

(sourced from Dow Jones)