Despite angst from the Chinese steel industry and radical proposals to move toward spot iron ore pricing, Rio Tinto remains content with the new system of quarterly supply contracts. RTP will continue to reprice its supply arrangements on a quarterly basis to ensure some relatively long-term stability in the steel industry, which depends on steady ore pricing to plan its operations.
For one thing, the quarterly system is still very new and RTP at least would like to give it a fair evaluation. But moving toward shorter-term contracts -- monthly pricing, for example -- is currently seen as a potentially destabilizing factor. RTP is reportedly allowing Chinese steel mills to opt into monthly arrangements on a voluntary basis, but in light of resistance from the steel industry, this is unlikely to emerge as a serious alternative to the quarterly system.
China fought the move from annual pricing and is still agitating for a return to that system. While shorter-term contracts theoretically expose manufacturers to potential savings as well as costs depending on the direction of the underlying commodity markets, the inherent volatility has been seen as an overall negative factor.
Simply maintaining the quarterly system is probably a net win for the iron miners and, at best, neutral for steel.
Source: Nasdaq
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