Rio Tinto Group and BHP Billiton Ltd., the world’s second- and third-largest iron ore exporters, may raise contract prices about 23 percent in the second quarter from the first as spot prices hit a record, according to calculations based on The Steel Index pricing.
The price of 62-percent iron ore arriving at Tianjin port averaged $178.03 a metric ton, including shipping, from Dec. 1 to Feb. 24, compared with $149.91 in the previous three months, according to The Steel Index. The price rose to $191.9 a ton on Feb. 16, the highest level since the data became available in November 2008. Average shipping costs fell to $7.3 a ton in the December-February period from $11.26 in previous three months.
Steel prices in China climbed to 4,961 yuan a metric ton on Feb. 15, the highest since Sept. 2008, enabling steelmakers to expand profit margins and pass on higher raw material costs.
“With the quarterly price hike, Chinese steelmakers are still making profits under the current steel prices,” said Henry Liu, a Hong Kong-based analyst with Mirae Asset Securities Co. “But steel prices may incur a substantial correction in April due to increasing credit curbs and an industry overcapacity.”
Quarterly prices are typically based on figures derived by deducting freight costs from the three-month average of iron ore price indexes provided either by The Steel Index, Platts or Metal Bulletin with a one-month lag period.
Pricing Options
Rio, BHP and Rio De Janeiro-based Vale SA, the biggest iron ore supplier, abandoned annual pricing last year in favor of quarterly agreements as spot prices rose. BHP offers various pricing options including quarterly, monthly and weekly pricing as well as auctions to mills, according to Mysteel Research Institute analyst Tang Xiaolan and Mirae’s Liu.
Rio Tinto spokesman Bruce Tobin declined to comment on likely price increases when contacted today. Fiona Martin, a spokeswoman for BHP, also declined to comment.
China’s steel inventories held by traders increased 11 percent to 14.72 million metric tons by the end of January from a month ago, reaching the highest level since October, the China Iron and Steel Association said last week, as private steelmakers have been running at full capacity on higher prices.
BHP fell 0.1 percent to close at A$45.95, and Rio was down 0.4 percent at A$83.93 on the Australian stock exchange. Baoshan Iron & Steel Co., China’s biggest listed steelmaker, fell 1.3 percent to close at 6.85 yuan in Shanghai.
Metal Bulletin
Second-quarter prices may increase 24 percent, according to data compiled by Metal Bulletin, which tracks 62-percent iron content ore arriving at China’s Qingdao Port. The average price has risen to $175.28 a ton for the period from Dec. 1 through Feb. 23, compared with $146.65 in the previous three months.
Contract iron ore prices rose about 7 percent in the January quarter after falling 13 percent in the prior three months.The price Rio charges steelmakers may rise about 34 percent in the second quarter from the previous three months based on the Platts index dated to Feb. 18, according to an e-mailed document sent by Platts via its public relation agency. The prices are measured in dry metric tons which exclude a typical 8 percent moisture of iron ore.