In order to seize China market, iron ore giants want to relax pricing
MetalBiz--According to foreign reports, the world's largest iron ore producer Vale will follow the example of its main rivals BHP Billiton and Rio Tinto companies to adopt a more flexible pricing strategy. Analysts believe that the purpose of this move is to occupy a favorable position in the battle of China market.
On May 7, the Chief Financial Officer of Vale Barbosa (FabioBarbosa) said in an interview that Vale is considering the new pricing model for the steel raw material. Under the existing pricing model, iron ore suppliers and steel producers conducts a price negotiation every year to determine the iron ore price for next year.
At present, chief executive officer of BHP Billiton MariusKloppers advocates to change the existing pricing model. He added that the new pricing model will ease the tension relations between the iron ore suppliers and steel manufacturers. BHP Billiton and Rio Tinto both expressed in 2008 that they will not carry out 200 iron ore pricing in accordance with the original ways. Currently, the two companies are the second and the third iron ore suppliers. The iron ore upper managements revealed that due the deadlock of annual price negotiation, Rio Tinto submit a 20% discount offer to Asia steel manufacturers last month.
Goldman Sachs analysts said on March 17 that because the demand shrinkage of downstream products resulted from the economic crisis, the iron ore price should sink 40% in accordance with the original pricing methods. Barbosa said: "We are more inclined to use the existing pricing way, but the market has proven that there are other feasible ways of pricing. If a customer needs, of course, we will consider other methods of pricing."
Iron ore business principle of BHP Billiton, IanAshby said that Chinese market exists two pricing ways. In the past three years, China had surpassed Japan and became the largest iron ore consumer all over the world. He also pointed out that on May 6 that the conventional iron ore pricing methods is being gradually broken at present. While MariusKloppers stated that the old pricing will make the relations between suppliers and manufacturers in fluctuation.
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