It is reported that a recent report predicted that the system of annual iron ore supply contracts will rapidly fall down, led by major iron ore enterprises and China, the world’s largest iron ore consumer.

In a report titled “structural reform of the steel resource industry and ripple effects” released by South Korea POSCO Research Institute on August 31st the traditional annual contract benchmark system is forecast to collapse with an introduction of various price systems as a result of cartel activities by global three major iron ore miners including a consortium formed between BHP Billiton and Rio Tinto.

The institute analyzed, “Key iron ore producers and China will lead a future change in a pricing system. Consequently, price instability of iron ore will grow due to annual price contracts to be made on a quarterly and half yearly basis and spot price sales will increase on China’s enlarged demand and supply.”

The report also prospected, “A reshuffle in the steel resource industry will facilitate a development investment competition among steelmakers. Also, investments on coking coal and middle standing steelmakers will widen centering on Chinese steel manufacturers for a stable resource financing.”

The report added, “With major steel producers’ market dominance strengthening, the industry will continued to see power imbalance among resource suppliers and steel makers, while increasing number of pro Chinese resource groups will be formed due to the Chinese government’s huge fiscal support. In respect to this, the institute proposed domestic steel makers to prepare against a possible rise in resource price variability and to promote stable strategies on resource financing.”

(Source from Maeil Business News)