Iron Ore Pricing War
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Close Iron ore pricing war By Javier Blas, Cynthia O’Murchu and Steve Bernard Published: October 14 2009 20:31 | Last updated: January 6 2010 16:41 The world’s second-largest commodity market by value – after crude oil – iron ore is central to the world’s economy. It forms part of the production process of almost anything that requires steel: ships, buildings, refrigerators, cars. Since the 1960s representatives of the world’s largest mining companies have held secretive negotiations to set prices for contracts with the big steel producers. Traditionally, the first deal between a miner and a major steelmaker set a “benchmark” which was followed by the rest of the industry, from Japan and South Korea to China and Germany. During the past year this pricing system has been challenged after China, the world’s largest importer of the commodity, refused to accept a “benchmark” deal between the miners and Japan, opting instead to buy in the spot market. This failure is a threat to the 40-year-old traditional system and has boosted the importance of the spot market and hybrid contracts. A move away from the annual benchmark prices could lead to more volatile prices for steel and other goods and have an impact on miners and steelmakers’ profitability. Our interactive graphic shows trends in supply and demand and the key players in the ongoing pricing war. Copyright The Financial Times Limited 2010. Print a single copy of this article for personal use. Contact us if you F COMMODITIES 3/22/2010 FT.com print article ft.com/…/3561ce38-b8e7-11de-98ee-0… 1/2
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Iron ore pricing warBy Javier Blas, Cynthia O’Murchu and Steve Bernard
Published: October 14 2009 20:31 | Last updated: January 6 2010 16:41
The world’s second-largest commodity market by value – after crude oil – iron ore is central to the
world’s economy. It forms part of the production process of almost anything that requires steel:
ships, buildings, refrigerators, cars.
Since the 1960s representatives of the world’s largest mining companies have held secretive
negotiations to set prices for contracts with the big steel producers. Traditionally, the first deal
between a miner and a major steelmaker set a “benchmark” which was followed by the rest of the
industry, from Japan and South Korea to China and Germany.
During the past year this pricing system has been challenged after China, the world’s largest
importer of the commodity, refused to accept a “benchmark” deal between the miners and Japan,
opting instead to buy in the spot market. This failure is a threat to the 40-year-old traditional system
and has boosted the importance of the spot market and hybrid contracts.
A move away from the annual benchmark prices could lead to more volatile prices for steel and other
goods and have an impact on miners and steelmakers’ profitability.
Our interactive graphic shows trends in supply and demand and the key players in the ongoing
pricing war.
Copyright The Financial Times Limited 2010. Print a single copy of this article for personal use. Contact us if you
Financial COMMODITIES
3/22/2010 FT.com print article
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