Iron price index idea 'unfair and improper'

By Fu Chenghao  |   2008-7-1  |     NEWSPAPER EDITION

THE China Iron and Steel Association said it approves of the 2008 iron ore contract prices agreed between Baosteel Group Corp and Rio Tinto but opposes the use of a price index to determine annual rates as proposed by BHP Billiton.

In its first official comment after Baosteel and the Australian miner Rio agreed on this year's prices last week, the association said yesterday the deal should be supported as it maintained the current pricing system.

Baosteel, on behalf of Chinese mills, has agreed to pay Rio 79.88 percent more for its "fine" iron ore and 96.5 percent more for its "lump" iron ore for the year starting April 1, leaving Australia's BHP the only one among the top three iron miners yet to reach a deal with China. Brazil's Vale announced a 65 to 71 percent hike in February.

Australia has been demanding bigger price increases than Brazil to reflect the costs of shipping ore from Australia to Asia.

BHP, which is now under pressure to agree to similar terms as Rio, has said it will seek "greater transparency" in iron ore pricing and plans to sign more contracts based on cash prices or linked to a pricing index.

The CISA said that, given the fact the three mining giants control more than 70 percent of the global trade in seaborne iron ore, using a price index to set the benchmark goes against the principles of the current market pricing system and is not in line with the reality of the current seaborne trade.

"The index is improper and unfair," CISA said. "It's not good for long-term stable cooperation between the supply and demand sides, so we firmly oppose it."

The CISA said iron ore is a different commodity to others because it can only be consumed by steel makers and produced by iron ore miners - no third-party can use or produce it. This characteristic means both sides have to live with each other and must set up a long-term and stable relationship and that is what the CISA is constantly working for, it said.