Metals News
Fortescue Says Room for New China Iron Ore Platform
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SYDNEY Jan 17 (Reuters) - Fortescue Metals Group , which plans to triple its production of iron ore in Australia to boost sales in China, gave guarded support to a new Chinese ore trading platform aimed at challenging established price indexes.

China launched its first physical iron ore trading platform on Monday, in the latest move by the world's biggest iron ore consumer to strengthen its pricing power over a raw material long dominated by giant foreign suppliers.

Fortescue Chief Executive Nev Power said on Tuesday it was still "very early days" for the China platform, adding: " We have to see a lot of the detail in that, so we will continue to evaluate that going forward."

But he also said there was room for more than one trading platform, saying: "We support any movement that provides complete market transparency."

Power said Fortescue currently relies on the rival Platts iron ore index to price its ore. "That (Platts) is the most representative index we have in the market and truly represents the closest we can get to supply-demand balance in the market," he added. 
The Platts index is one of the three major global iron ore indexes, with the two others being Metal Bulletin Iron Ore Index and The Steel Index .

The China Beijing International Mining Exchange (CBMX) launched the online platform together with the China Iron & Steel Association (CISA) and the China Chamber of Commerce of Metals Minerals & Chemicals Importers & Exporters.

CBMX also launched a new index based on completed transactions rather than offer prices, and said the system would better reflect actual supply and demand and eliminate the effects of speculation and manipulation.

In 2009, mining giant BHP Billiton led a move to scrap a system of pricing iron ore contracts annually in favour of an index-based quarterly pricing mechanism to capture sharp swings in spot prices.

Prices for quarterly contracts are largely based on the average index prices over a three-month period ending a month before the start of each quarter.

In recent months, producers have started linking sales to monthly average spot prices. Contracts for supply volumes are still negotiated over longer terms to allow for mine production and shipping schedules.

Besides Platts, the CBMX platform will also attempt to provide a rival to the GlobalOre trading exchange backed by BHP and based in Singapore.

Fortescue plans to spend $8.4 billion to lift production to 155 million tonnes a year by mid-2013 from 55 million now, Power said after the company reported a 19 percent rise in December quarter iron ore production at an average price of $122 per dry metric tonne..

The majority of its ore goes to China, though it has started selling ore in other countries, including Japan and South Korea, he added.


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