TIANJIN, China, Nov 07, 2011 (Dow Jones) -- Global iron ore miners need to realize that their fortunes rise and fall with those of steelmakers, and thus need to share both benefits and risks to ensure the industrial chain is sturdy, Anshan Iron & Steel Group Corp. President Zhang Xiaogang said Monday.
The comments from the top executive at China's third-largest steelmaker by output come after Brazilian miner Vale SA (VALE) agreed to renegotiate the pricing of iron ore with its Chinese clients amid slumping spot prices.
The three largest global iron ore miners, Vale, BHP Billton Ltd. (BHP) and Rio Tinto PLC (RIO), have in recent years abandoned a decades-old benchmark system under which contract ore prices were set annually, replacing it with a spot market-linked quarterly pricing system.
But with ore prices having fallen by more than 20% since September, Chinese steelmakers have been clamoring for term prices to better reflect spot prices, saying the lag--around three months, as term prices for the current quarter are determined by average spot prices in the previous quarter--in the current system is squeezing margins.
If global ore miners work with steelmakers toward a mutually beneficial model, steelmakers could concentrate on making steel rather than diversifying into iron ore mining, which risks further hurting profitability and can lead to iron ore overcapacity, Zhang said in an emailed statement.