The world's largest iron ore producer Brazil's Vale has said that steel producers should understand that contract prices in future must reflect spot market prices, agreeing with Australian iron ore giant BHP Billiton, which has been pushing for more flexible pricing of iron ore by reference to the spot market.
According to the Australian press, the 40-year global iron ore pricing system is heading for its biggest shake-up after Vale's moved to back BHP Billiton's stance. The Australian media have commented that the shift by the Brazilian producer strengthens expectations that Australia's iron ore producers will secure big price rises for iron shipments in 2010, perhaps more than the 30-40 percent price increase.
Vale's director for ferrous metals Jose Carlos Martins has indicated that the change was a response to the behavior of the Chinese steel industry during the crisis and the huge price difference that has opened up between contract prices and the current spot price. BHP Billiton chief executive Marius Kloppers recently made a similar statement.
The benchmark price is about $60 per mt while the spot price is hovering at $125 per mt.