August 05,
The top three iron ore miners – Brazil’s Vale and Australia’s BHP Billiton and Rio Tinto ditched the age old annual benchmark system for a new scheme that bases each quarter’s prices on the average spot market price in the previous quarter.
But the mismatch between the spot prices and the quarterly contracts would allow the speculators to boost stock when spot prices fall and then buy on quarterly contracts when prices go back up. So the price fluctuations can make the quarterly review inefficient.
Analysts say that the market will move to a pricing structure which buyers and sellers are comfortable with. The volatility in the Iron ore prices could push the industry towards monthly pricing system. Although the top three miners said the current quarterly review can cope with the sharp swings in the prices.
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