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Iron Ore Price Negotiations for 2011 Commence

With the proposed joint venture between BHP Billiton and Rio Tinto literally turning to dust in Australia's Pilbara, the main beneficiaries of the collapsed deal appear to be the Chinese.

The failure of deal ensures that 30% of the sea-borne iron ore trade remains with Vale, 25% with Rio Tinto and 15% with BHP.

Iron ore price negotiations for 2011 between Chinese steelmakers and the Australian and Brazilian iron ore suppliers have begun in earnest now confirmed the deputy chairman of the China Iron and Steel Association, Luo Bingsheng.

The old system of long term iron ore contract pricing is unlikely to return in the near future as per analysts. The quarterly iron pricing mechanism has been bringing bumper profits to the iron ore producers, but is also un-stabilizing the market and putting extra pressure on the steelmakers.

The already narrow profit margin of the steelmakers is taking a further beating under the new pricing systems. With iron ore supply from India getting restricted due to a ban on export in the southern state of Karnataka the steelmakers of China are left with limited options.

Zhang Lin of the Lgmi Research Centre confirmed that iron ore import volume has shown a decreasing trend despite China being the largest iron ore importer in the world. The price of raw material is boosting worldwide and Chinese steelmakers have less say in the matter than they did before.

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