According to media reports, the world's largest iron ore mining company, Vale, may change its quarterly contract prices to follow the spot market more closely. Vale's current quarterly contracts are based on the average of iron ore spot prices in the three month period ending one month before the beginning of the new quarter. The reports come as spot iron ore prices have fallen substantially in recent weeks. There is also speculation circulating that Vale may switch some customers to a monthly price program, but will largely keep its current quarterly pricing system.
The reports of a pending change may be a result of a recent report in Brazil's O Estado de S. Paulo newspaper, which indicated that iron ore mining companies, including Vale, have given Chinese mills the option to buy iron ore at prices below the already locked-in Q4 price because of the substantial drop in spot prices recently.