Economy

Quarterly pricing system successful, says Rio Tinto CEO

By Zhou Yan (China Daily)
Updated: 2010-08-21 09:51

Albanese sees room for better ties with domestic mills

SHANGHAI - Anglo-Australian miner Rio Tinto Plc on Friday said it had no intention of pricing its iron ore on a monthly basis, as most of the Chinese steel mills have accepted the third quarter rates.

"At this point in time, the Chinese mills are ok with the quarterly pricing mechanism. There is less tension in our negotiations with the mills," said Tom Albanese, chief executive officer of Rio Tinto.

Albanese said the quarterly pricing system has proved satisfactory and is a compromise between the annual and spot rates. The annual contracts posed problems for the industry, while the spot rates are not exactly an indicator of future prices.

Tom Albanese, chief executive officer of Rio Tinto

Spot prices of iron ore fell below the quarterly rates in June and July, prompting buyers to turn to the spot markets for raw materials.

"We're pleased that we continued to price iron ore on a quarterly basis during the period," Albanese said, adding that the price overhang has now passed.

The world's top three iron miners, including Brazil's Vale SA, Australia's Rio Tinto and BHP Billiton, abandoned the annual benchmarking system for iron ore this March and instead opted for quarterly contracts, regardless of the stiff opposition from buyers.

Theoretically, over time, the quarterly pricing should represent the average of spot rates, and smooth out the highs and lows of fluctuations, said Albanese.

At the same time miners are further improving the process to ensure that there are no blips, he said.

Commenting on the reports that the company is considering monthly pricing for iron ore, Albanese said Rio has not yet implemented the scheme.

China accounts for a quarter of Rio Tinto's revenues, which surged to nearly $11 billion in 2009 from a mere $400 million in 2000.

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Rio inked a $1.35 billion deal in July with Aluminum Corporation of China Limited (Chalco) to develop the Simandou iron ore project in Guinea, Africa.

The alliance is expected to ease the strained ties between Rio and China after it walked out of an earlier deal with Chinalco, Chalco's parent and four Rio employees were detained for bribery.

"I hope the Chalco agreement represents a strong level of progress in our relations with the Chinese government and Chinalco," said Albanese.

China is the world's largest consumer of iron ore accounting for over half of the world's output. It imported nearly 51.2 million tons of the mineral in July, a 9 percent growth over June.

The nation's share in Rio's total revenue will continue to increase over the next few years, said Albanese.