The iron ore market has continued its recent improvement in the third quarter of 2009, but its pricing future remains uncertain, a report from Resource Capital Research (RCR) has found.
“The iron ore and steel markets continued to improve through the September quarter, if erratically,” RCR’s iron ore analyst Trent Allen said.
Allen said the continued rise of iron ore prices and supply can be largely attributed to stimulus driven demand for steel, especially from China.
Spot prices for iron ore rose in the September quarter, reaching a 2009 high of US$105.9 per tonne, RCR found.
This represents a 76% premium over the benchmark price of US$62 per tonne Australian producers reached with non-Chinese customers earlier in the year.
According to Allen, prices have been somewhat clouded by the breakdown of benchmark price talks between Australian iron ore producers and Chinese steel makers.
“The spot market is open to speculation and, in the absence of a China benchmark, is having an unusually strong influence on the iron ore space,” he said.
“It really had the effect of dampening China’s hopes for a 40% cut in the 2008 benchmark and is a major reason why no contact price was set.”
Allen said that now talks for the 2010 benchmark are almost ready to begin, the current spot market system may spell the end of the traditional system.
“It is uncertain if a benchmark will be set,” he said.
“BHP in particular has been pushing for a move to an index-based pricing system and shorter contracts. The great confusion of 2009 seems to have made that possible.”