Annual contract system collapses
By Javier Blas 2010-03-31

For decades, iron ore was plentiful, prices were stable and mining the commodity was a monotonous and unglamorous business.

That began to change in the early 2000s when China’s huge steel needs transformed iron ore into the “unobtainium” of the global commodity market. Prices began to soar and, as they did so, the annual pricing system that had served as a benchmark for four decades began to be questioned.

That process reached its conclusion yesterday when miners and steelmakers ditched the system of annual contracts and long negotiations that had been in place since the 1960s for new short-term deals based on the spot market.

“This is a momentous occasion,” says Melinda Moore, a commodities analyst at Credit Suisse in London. “The industry is revolutionising the way iron ore is priced.”

The revolution comes as the economic and geopolitical importance of commodities is rising because of the large needs of countries such as China and other developing countries in Asia, the Middle East and Latin America.

The change is not, however, a new phenomenon in commodities markets. Iron ore is simply following other examples, such as the transformation in the crude oil pricing system in the late 1970s, aluminium in the early 1980s and, more recently, thermal coal in the early 2000s.

All those markets evolved from being largely fixed or with prices set annually into contracts linked to the spot market. At a later stage, the commodities also developed derivatives contracts, with consumers and producers hedging the risk of volatile prices with over-the-counter swaps and, later, futures contracts.

Alberto Calderón, chief commercial officer at BHP Billiton in Melbourne, says iron ore is becoming a “normal” commodity. “The price system is moving to where other commodities have already moved in the past,” he told the Financial Times.

The “normalisation” comes as the size of the internationally traded iron ore market swells. The seaborne market almost doubled to more than 900m tonnes last year, up from 450m tonnes in 2000. Crucially, China’s share jumped to about 70 per cent, up from 16 per cent a decade ago.

The strong growth has prompted the emergence of a relatively large spot market, accounting for at least 10 per cent of the total trade, according to conservative estimates. That development has proved pivotal to changing the pricing system as steelmakers and miners could price their contracts against the spot market. Nonetheless, some steelmakers, particularly in Europe, question whether the spot market truly reflects supply and demand fundamentals. The miners say it does.

Under the traditional iron ore pricing system, the first price agreed between a miner and a big steelmaker during the annual negotiations became a benchmark followed by the rest of the industry for a year.

Because the cost of iron ore filters into steel prices and, ultimately, into the cost of everyday goods, the annual talks were important for the global economy.

The new price system is a radical departure. It uses quarterly contracts, rather than annual deals, and the cost is set against an average of the spot market level instead of through negotiations.

For next quarter, mining and steel executives calculate that leading steelmakers would pay about $110-$120 a tonne for their ore supplies, an 80-100 per cent increase from the $60 level at which the 2009-10 annual contracts were settled.

The price will change again the following quarter, reflecting the spot market. Each steelmaker will use its own formula to calculate the new prices, executives say.

For example, the Japanese steelmakers’ price for the next quarter is based on the average spot price of the December-January- February period of about $119.3 a tonne. Excluding the freight cost of about $11 a tonne, the final price is about $108.

On the other hand, the Chinese mills, including Baosteel, are in general using the average of the first quarter to price the second quarter, executives say.

The January-March average is $131 a tonne. Excluding the freight cost, the Chinese price equals about $119 a tonne for the second quarter .

The move to use spot prices would particularly favour Rio Tinto and BHP Billiton, as shipping costs from Australia to China are less than half those from Brazil where Vale, the world’s other main iron ore supplier, is based.

The steelmakers’ costs are likely to increase even further during the summer as spot prices continue to rise. Spot Australian benchmark iron ore – 62 per cent iron content – yesterday rose to a fresh 18-month high of $153.6 a tonne.

But Pedro Galdi, mining analyst at SLW Corretora, a São Paulo brokerage, says the new rolling contracts could hurt the miners if demand wanes. “The spot market price is determined by Chinese demand. If China stops buying, the spot price will fall and miners will have to accept lower prices,” Mr Galdi said. “What about next year? Everybody is investing to increase capacity, so later on supply could overtake demand.”

So far, the miners appear relaxed about the prospect. On the one hand, they anticipate a strong market because of growing steel demand in China and lower domestic iron ore production. India, the world’s third-largest producer, is also restricting output, raising export duties. In addition, Vale, Rio Tinto and BHP Billiton will not see any big expansion in supply for the next two years.

铁矿石旧制寿终正寝
英国《金融时报》 哈维尔•布拉斯 报道 2010-03-31

在长达数十年中,铁矿石储量丰富,价格稳定,开采这种大宗商品是一个单调乏味的行当。

21世纪初,情况开始发生变化。中国巨大的钢铁需求,使铁矿石成为国际大宗商品市场上的“难得素”(unobtainium,《阿凡达》片中的一种稀有矿物——译者注)。铁矿石价格开始飞涨。与此同时,施行了40年的年度定价机制开始受到质疑。

昨日,这件事终于有了定论。矿商和钢铁生产商放弃了从上世纪60年代起实施的长时间谈判和签署年度合约的制度,转而按照现货市场行情来签署新的短期协议。

“这是一个重大时刻,业界正从根本上改变铁矿石的定价方法。”瑞信(Credit Suisse)驻伦敦大宗商品分析师梅林达•摩尔(Melinda Moore)表示。

这场变革发生的背景是:由于中国和亚洲、中东及拉美等地其它发展中国家对大宗商品需求巨大,大宗商品的经济及地缘政治重要性日益上升。

不过,这种变革在大宗商品市场并不新鲜,而是有例可循的,如上世纪70年代末期原油定价机制改革、80年代初期铝定价机制改革,以及21世纪初的动力煤定价机制改革等。

所有这些市场都从采用基本固定的价格,或者按年度确定价格,逐渐转变成采用与现货市场挂钩的合约。后来,大宗商品还开发出了衍生品合约,先是场外掉期合约,接着是期货合约,让消费者和生产商得以对冲价格波动风险。

必和必拓(BHP Billiton)驻墨尔本首席商务官阿尔伯托•卡尔德龙(Alberto Calderón)认为,铁矿石正成为一种“常规”大宗商品。他向英国《金融时报》表示:“铁矿石价格机制正沿着其它大宗商品昔日走过的路线发展。”

这一“正常化”过程,发生在铁矿石国际交易量激增之际。去年,铁矿石海运市场的规模从2000年的4.5亿吨,增至逾9亿吨,翻了一倍。更关键的是,中国在其中所占的比例,从10年前的16%猛增至70%。

这种强劲的增长催生了一个规模相对不小的现货市场。据保守估计,在铁矿石总交易量中,现货市场至少占到了10%。现货市场的发展,在铁矿石定价机制的改革中起到了关键性的作用,它使钢铁生产商和矿商能够根据现货市场行情来确定合约价格。尽管如此,一些钢铁生产商(特别是欧洲的生产商)还是怀疑,现货市场是否真实地反映了供需基本面情况。矿商们给出了肯定的回答。

按照传统的铁矿石定价机制,在年度谈判中,只要一家矿业企业和一家大型钢铁企业率先谈成了价格,其它企业就都要接受这个价格。

由于铁矿石成本会渗透到钢铁价格中,并最终渗透到各种日常商品的价格中,因此铁矿石年度谈判事关全球经济。

新定价机制彻底背离了传统机制。它采用的是季度合约,而非年度合约;合约价根据现货市场的平均价格确定,而不是通过谈判确定。

矿业及钢铁行业的高管们估计,在下个季度,主要钢铁企业将须支付每吨110-120美元的价格购买铁矿石,这比2009-10年度合约中敲定的每吨60美元上涨了80%-100%。

在下下个季度,价格将再次改变,以反映现货市场的变化。高管们表示,各家钢铁企业将使用自己的公式来计算新价格。

例如,日本钢铁企业是根据12-2月期间每吨约119.3美元的平均现货价格,计算下个季度的合约价。扣除每吨约11美元的货运成本,最终价格约为108美元。

而中国钢铁企业,包括宝钢(Baosteel)在内,一般采用首季的平均现货价格,来确定次季的价格。

1-3月期间,平均现货价格是每吨131美元。扣除货运成本,对中方来说,次季价格大约是每吨119美元。

采用现货价格进行定价,对力拓(Rio Tinto)和必和必拓(BHP Billiton)格外有利。从澳大利亚到中国的船运成本,还不到从巴西到中国的一半。巴西是另一大铁矿石供应商——淡水河谷(Vale)的所在地。

随着现货价格继续上涨,钢铁企业的成本到夏季可能进一步上升。澳大利亚基准铁矿石(含铁量62%)的现货价格昨日涨至每吨153.6美元,创18个月新高。

但圣保罗经纪公司SLW Corretora的矿业分析师佩德罗•加尔第(Pedro Galdi)表示,如果需求减弱,新采用的滚动合约可能会让矿商受损。“中国需求决定了现货市场的价格。如果中国停止购买,现货价格就会下跌,那么矿商就只能接受下跌的价格。明年会怎样呢?大家都在投资扩大产能,所以以后可能会出现供过于求的局面。”

到目前为止,矿商们似乎对前景很是放心。一方面,他们预计市场会保持强劲,因为中国钢铁需求不断增加,而铁矿石产量有所下降。全球第三大生产国印度也在限制产量,征收起了出口关税。此外,未来两年内,淡水河谷、力拓和必和必拓都不打算大幅增加供应。

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