BHP Billiton plans new iron ore pricing scheme

Australian miner BHP Billiton plans to create a new pricing mechanism for iron ore that China will likely object to, the Financial Times reported. The firm has proposed an iron ore index that will establish annual iron ore rates based on the cash price paid for the commodity in the spot market. It wants to sell more iron ore on the spot market rather than through annual contracts. The price of iron ore annual contracts is set each year when the world's largest suppliers, Rio Tinto and Companhia Vale do Rio Doce negotiate with steelmakers, now led by China, which replaced Japan last year as the lead negotiator in the annual price-setting meetings. Demand for iron ore from China has helped drive prices up since last December, when a price increase of 9.5% for the year starting in April 2007 was agreed upon. However, the spot price for iron ore has since risen much more. Analaysts forecast a price increase of 30-50% in the annual talks this year.