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Iron ore price negotiations - Minmetals warns of severe volatility
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Tuesday, 07 Sep 2010

Reuters quoted a senior official at Chinese metals trader Minmetals as saying that the abolition of a decades-old annual iron ore pricing mechanism has damaged the long term stable relationship between iron ore majors and Chinese steel mills.

Mr Feng Guiquan vice president of the mining giant said "The current iron ore pricing scheme, based on the spot price index, will bring more volatility to the market and the index derivative will also be easily controlled by speculators."

The three big iron ore miners, Rio Tinto, BHP Billiton and Vale have ditched annual iron ore benchmark prices which were largely favored by Chinese steel mills and turned to more flexible index-based pricing since the second quarter.

However, the China Iron & Steel Association has led big steel mills in a stand against the change and those mills have had to buy shipments at a temporary price settled on a quarterly basis with prices based on the average index price for the previous quarter.

Rio Tinto and Vale have recently unveiled plans to cut iron ore prices by around 10% for the fourth quarter in response to falling iron ore spot prices during June to August.

(Sourced from Reuters)

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