Reuters reported that China is still hopeful that major foreign suppliers will change the way they set their prices.

Mr Zhu Jimin chairman of the Shougang Group said that "The miners have expressed a positive attitude and Chinese steel enterprises should have a positive attitude as well."

Mr Zhang Changfu vice chairman of CISA said that the association was currently in talks with the 3 major iron ore suppliers to reform the pricing system. Chinese steel mills were currently buying ore mostly on a spot price basis.

In 2008, the onset of the global financial crisis sent spot market iron ore prices into a rapid decline, persuading a significant number of Chinese steel mills to default on contracts that were still priced at pre crisis levels. Mindful of another round of defaults, miners have this year offered to compromise by setting contract prices based on much cheaper Q4 averages.

China has long complained about the quarterly index based system, saying that it is vulnerable to speculation and did not serve the interests of the iron and steel industry as a whole. It has also routinely blamed the poor performances of its steel mills on the monopoly behavior of Vale, Rio Tinto and BHP Billiton.

The big three iron ore producers, Vale of Brazil and Australia's BHP Billiton and Rio Tinto last year abandoned a decades old benchmark system in which contract iron ore prices were set annually. They replaced it with a more flexible index based quarterly system designed to better reflect changes in market conditions and cut out the need for protracted and sometimes acrimonious price negotiations with their customers, particularly those in China. But the new system has its own anomalies. Steel mills are now paying for ore based on prices set over the June to August period even though prices have collapsed by around USD 60 per tonne since then.

Once the old annual benchmark system was abandoned, most industry analysts believed it would only be a matter of time before buyers and sellers switched entirely to daily index pricing but China has fiercely resisted such a move saying it would put struggling mills at the mercy of suppliers and speculators.

Mr Zhu said that he hoped the two sides could come out with a better long term pricing solution. The big improvement now is that even the miners are thinking carefully about the issue. I can't draw the conclusion but we can only solve this problem by treating it rationally.

(Sourced from Reuters)