Iron ore continues to raise prices to a fixed contract price close to the market price
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According to Xinhua News Agency, the international mining giant Vale held the "Freshwater River Day" event at the Brazil Pavilion at the Shanghai World Expo on the afternoon of the 1st. Vale CEO Arganelli said at a news conference that the company has reached an agreement with major customers on the quarterly pricing model for iron ore. According to the new pricing model, iron ore prices will increase further in the third quarter.
Iron ore transferred to the seller's market
The direct reason for the change of iron ore from “annual benchmark pricing†to “quarterly pricing†is that the iron ore market has moved from “buyer market†to “seller market†in the past two years. Although the “quarterly pricing†model has been strongly opposed by global steel mills, in the case of mines, the major steel companies can only choose to accept. Since the core of the “quarterly pricing†model is to make the iron ore contract price close to the market price as much as possible, the iron ore contract price in the second quarter has increased by about 100% compared with last year in the context of the soaring iron ore spot price.
Roger Agnelli said that although it is difficult to adapt the market to the new model, Vale has already reached agreement with major customers. “The lack of market demand last year caused the iron ore contract price to be higher than the spot price. Therefore, many customers choose not to perform the contract and purchase directly from the market, which makes the annual benchmark pricing system step by step.†Roger Agnelli said Under the new quarterly pricing model, the current iron ore contract price is based on the average price of the iron ore market in the previous quarter, so it can more sensitively reflect market volatility.
The contract price is still under development
“This new pricing model is more transparent and more sustainable than before. Steel companies can take advantage of lengthy negotiations and debates to better focus on business management.†Roger Agner Lee said. In the third quarter, the iron ore contract price will continue to rise by 30% to 35%. Roger Agnelli said: "We never create or ask for prices. The contract price in the third quarter is still under development. Determined by market demand."
Martins, president of Vale's iron ore business, further explained that in order to let customers know in advance the iron ore price in the next quarter, the company will set aside one month for pricing, so the iron ore contract price in the third quarter will be From the average price of iron ore market from March to May, “from the existing data, the iron ore contract price in the third quarter will be further improved. Although the real iron ore market price may fall in the third quarter, But that would be reflected in the contract price in the fourth quarter. So, this is a relatively fair pricing model that is acceptable to mines and steel mills."
The contract price is close to the market price
Due to the decline in steel prices, the current spot price of iron ore in the domestic market has dropped back to around US$150/ton. If Vale is again raised by 35% to US$145/ton, the iron ore contract price will be similar to the market price. . “This means that domestic steel mills should be more cautious when purchasing raw materials in the future, and pay attention to grasping the rhythm.†Wu Wen, general manager of the industry and the general manager of “Steel House†said.
