Numerology has always played a role in many Asian cultures. The numeral 3 is considered lucky, while 4 – a homonym for death in Chinese – is obviously not.

Last night, the four-decade-old tradition of negotiating iron ore prices collapsed after Chinese buyers refused to fall into line with prices set by Japanese and Korean steel mills who had negotiated a 33 per cent discount. The Chinese mills were insisting on a 40 per cent price cut.

The stalemate has persisted beyond the June 30 deadline, effectively bringing the annual price negotiations to an end. From now on, prices will be set purely on supply and demand conditions of the spot market as shipments arrive.

At the moment, with spot prices sitting well above the negotiated prices, that will favour producers. BHP, in particular, has been keen to break the annual price negotiation cycle, not just to better reflect market conditions, but to end the effective freight subsidy Australian producers fork out to Brazilian rival Vale.

Apart from coal, almost every other metal is priced on spot markets so the change won’t necessarily represent a leap into the unknown for our big diversified miners, BHP and Rio Tinto. In future, it is possible a quarterly price setting regime may be installed to better reflect short term market movements.

China’s insistence on a bigger annual price cut than Japan and Korea reflects its growing confidence and the realisation that it now is the dominant global buyer. Now it wants to use that market muscle to set prices.

Posted by Shayne Heffernan on Jul 1st, 2009and filed underMarkets.You can follow any responses to this entry through theRSS 2.0You can leave a response by filling following comment form or trackback to this entry from your site