Iron ore pricing war

The world’s second-largest commodity market by value – after crude oil – iron ore is central to the world’s economy. It forms part of the production process of almost anything that requires steel: ships, buildings, refrigerators, cars. And now the pricing regime has entered uncharted territory, with markets to be based more on quarterly spot prices and not annnual negotiations.

Since the 1960s representatives of the world’s largest mining companies have held secretive negotiations to set prices for contracts with the big steel producers. Traditionally, the first deal between a miner and a major steelmaker set a “benchmark” which was followed by the rest of the industry, from Japan and South Korea to China and Germany.

During the past year this pricing system has been challenged after China, the world’s largest importer of the commodity, refused to accept a “benchmark” deal between the miners and Japan, opting instead to buy in the spot market. This failure is a threat to the 40-year-old traditional system and has boosted the importance of the spot market and hybrid contracts.

A move away from the annual benchmark prices could lead to more volatile prices for steel and other goods and have an impact on miners and steelmakers’ profitability.

Our interactive graphic shows trends in supply and demand and the key players as the pricing war built up to the creation of a whole new system. with its risks of major commodity inflation.