According to an official at the China Iron & Steel Association at the Steel and Raw Materials Conference 2009 held in Qingdao on October 15th to 17th, China is seeking to establish a new iron ore pricing negotiation mechanism.
According to the CISA the new accounting period, a long term agreement based on the interaction between trade volume and price, as well as unified prices are three main factors that will make the new mechanism different.
Chinese steel mills failed to reach their goals in the 2009 iron ore price negotiation. As the world three largest iron ore miners Brazil Vale SA, Australia Rio Tinto and BHP Billiton all refused to accept Chinese steel producers demand for a 40% price cut, the steel mills have no choice but to turn to the cash market.
Current accounting period of Chinese steel mills agreement with iron ore giants is from April 1st to March 31st 2010. The CISA is now suggesting a new accounting period that is from January 1st to the end of the same year. United prices means that fixed prices should be determined for each kind of iron ore with different content and different quality from different regions and suppliers and that there would be no differences between negotiated prices and spot prices. Both steel producers and iron ore traders should follow the unified prices.
Mr Shan Shanghua secretary general with the CISA said at the conference that Chinese steel mills didn't expect steel producers in other countries and regions to refer to the prices proposed by China during the negotiation and that Chinese steel mills would not blindly follow their agreements with the iron ore miners.
He said that an agency system should be introduced into iron ore trade to make all domestic enterprises follow unified iron ore prices. Trading subsidiaries of domestic steel enterprises should also adapt the agency system when selling iron ore to other domestic companies.
The three largest iron ore miners gave a lukewarm response toward the new pricing negotiation mechanism proposed by China. "We won't offer a price cut for iron ore in 2010. Iron ore prices may rise by 30% to 35% next year rather than decline by 33% in 2009."