TOP iron ore buyer China faces being led for the second year in a row on new payment option paths as key suppliers look to take advantage of tighter supplies and near record high spot prices.
Chinese steel firms might grumble but have no choice at least until increases in supply nudge the market in favor of buyers in the next few years.
According to Hu Kai, an iron ore analyst with Umetal.com, Chinese steelmakers would have to pay miners an extra US$160 million to US$200 million in January alone.
Miners ditched a decades-old annual benchmark price system in April last year after negotiations with major Chinese customers collapsed.
It was replaced by a new index-based mechanism adjusted quarterly, grudgingly accepted by mills, but the collapse of the benchmark has also allowed alternative methods to flood in.
It is evident that there is not one pricing mechanism anymore there is a whole plethora, and it is horses for courses depending on what kind of deal the iron ore suppliers can do with their customers, said Paul Bartholomew, Australia manager with consultancy Steel Business Briefing.
The big miners, keen to put an end to the acrimony and politicization that arose from benchmark talks, sought to make the price of ore more objective and scientific.
But for China, differences in the way prices are calculated cost billions of dollars, hence the search for alternatives.
China s iron ore imports are expected to rebound this year after purchases dropped slightly in 2010 from a record 627.8 million tons in 2009, according to a Reuters poll.
Last April, the China Iron and Steel Association (CISA), representing 77 steel mills, castigated the miners for squeezing the steel sector for short-term profit.
CISA has insisted nothing had been set in stone on price trends and the fight for what it regarded as a fairer system would continue. But eight months into the new era, a return to something akin to the benchmark remains the least likely outcome.
Baoshan Iron and Steel and Wuhan Iron and Steel, China s second and third biggest steel mills, said last week they would raise February steel product prices by 100-200 yuan (US$15-30) per ton, driven by rising costs.(SD-Agencies)
