Big, Profitable Iron Ore Market Change Looms
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China won't be pleased.According to media reports major iron ore exporters, including BHP Billiton and Rio Tinto, have reached a preliminary agreement to move away from annual contract pricing to quarterly arrangements.The short term contracts would be linked to the spot price: a move, which translated into an actual new system, would see iron ore prices more than double from the present & #36;US60 a tonne top & #36;US130 a tonne or more.The Financial Times reported unknown company executives as confirming the move away from annual pricing agreements.If the new system evolves, it will in fact mirror the quarterly pricing arrangement BHP & #160;won earlier this month for coking coal with customers in Japan, Europe and Korea.That saw BHP win price rises of 55% for hard coking coal, the best quality coal there is for the steel industry.The FT said in its report that & quot;The miners, including Vale of & #160;Brazil and UK-based & #160; BHP Billiton and Rio Tinto & #160;and steelmakers such as Nippon Steel, JFE, Sumitomo Metals and Kobe still need to resolve significant obstacles to reach a final agreement & quot;.The FT said the deal was just with the Japanese mills. Posco, the giant South Korean steel group, plus Arcelor Mittal, the world's biggest steel maker and other mills in Europe, have not yet agreed to the new pricing structure.Under the current iron ore contract system, the first price agreed between a miner and a steelmaker became a benchmark followed by the rest of the industry for a year.That's why the 33% cut agreed to by the Japanese mills and the big iron ore companies last year became the industry benchmark, even though China had insisted on a 45% cut.That demand went unanswered and the Chinese and the big iron ore groups went to a mixed system of unofficial pricing based on spot prices and the Japanese price cut.A surge in the spot price soon saw BHP and Rio shift more and more ore sales onto that market, so much so that 50% or more of their sales were being made at spot market pricing. & #160;Surging demand for steel and iron ore from China, and then Japan and Korea later in 2009 saw prices continue to rise.A tax on exports in India saw prices jump sharply, to around & #36;US130 a tonne and more (including freight from Australia).Current spot prices are around & #160; & #36;US143.80 a tonne are, when adjusted for the cost of freight, more than double the & #36;US60- & #36;US62 a tonne & #160;2009-10 year contract price in Japan which ends on March 31.BHP shares fell 61c, or 1.4%, to & #36;42.59. Rio shares fell & #36;1.15, or 1.3%, to & #36;75.03.Footnote: BHP is not a UK-based company as claimed by the FT, it is based in Australia and is a dual-listed company. & #160; & #160;
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Daniel Kertcher established Platinum Pursuits in 2001 as a vehicle in which to share his knowledge of strategies to use the financial markets to grow wealth, with the aim of achieving financial freedom by making your money work for you.
His argument is that until you become financially literate and develop a method where you're able to get a reasonable return on your capital (i.e. making your money work for you), you will instead be forever working hard for your money.
Daniel Kertcher personally achieved financial freedom at a relatively young age, through his knowledge of property and then financial markets investing. Through using Options and leveraged instruments such as CFDs, Daniel developed a system to trade the markets where he could benefit from the leverage when the trade went in the direction he predicted, and hedged his positions so that there was a limited downside risk.
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To be truly financially literate, it can pay to explore all the options available when you are in a position to try to get ahead in life. Daniel currently presents free introductory seminars nationally on selected dates from February to November. |
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