2011-02-25 17:32

Chinese steel makers have to accept iron ore prices based on three indexes, the 21st Business Herald reported Friday, citing Luo Bingsheng, former vice-chairman of the China Iron & Steel Association (CISA).

The three giant mining companies, BHP Billiton, Vale and Rio Tinto, use The Steel Index (TSI), the Metal Bulletin Iron Ore Index (MBIOI) and the Platts Iron Ore spot market assessment (IODEX) as their pricing references.

They will use daily, monthly or quarterly prices as temporary price gauges. Previous or current prices will decide the final price, according to the newspaper.

BHP Billiton's downstream customers can choose short-term, monthly or quarterly pricing.

If a steel mill chooses monthly pricing, the temporary price will be the average Platts price between Feb 1 and Feb 15. The final price for settlement will be the average Platts price for the whole month of February.

Vale and Rio Tinto currently use quarterly pricing but may turn to monthly pricing, Luo said.

Mining giants do not negotiate prices with their Chinese buyers any more. Rather, they give them notice before price hikes, Luo said.

Luo added Chinese steel makers can only decide to accept the prices or not to buy at all.

But this pricing method may not last long as things change, Luo said.