Leading iron ore mining company Rio Tinto said it is in talks with global steel firms for supplying steelmaking raw material every three months rather than annually due to the 'structural shift in the market'. Its primary mining operations are in Australia. The firm's Chief Executive Iron Ore Sam Walsh said: "Rio Tinto's position reflects the recent structural shift in the iron ore market away from the benchmark pricing. It is in line with our recent comments that benchmark pricing only works if it reflects market fundamentals, otherwise the system would need to change." The annual iron ore contracted rates between Australian mining firms like Rio Tinto and BHP Billiton and Japanese steel mills comprise the benchmark pricing system, which is followed globally. However, after the global economic crisis that saw the prices of the mineral crashing by about 60 percent to USD 40-50 a ton and then recovering to the current levels of US$125 a tonne, the mining firms started considering short-term deals with steel companies so as to be closer to the spot prices. Rio Tinto's announcement follows similar moves by BHP Billiton and Brazil-based Vale, which are already in advanced stages of negotiations with steel makers for such short-term contracts. According to the World Steel Association, the three firms had a total share of the sea-borne iron ore market of 68.5 percent in 2008. Industry observers say quarterly contracts for iron ore supply gives flexibility in the pricing mechanism to both the mining firms and their buyers -- steel companies. Iron ore is a vital input in steel-making. According to industry experts mining firms are entering into supply contracts with steel makers for the April-June quarter at about USD 110-120 a tonne, which is an 80 to 100 percent increase from the levels of 2009-10 annual contracts.

AEuropean steelmakers may demand a surcharge on their prices to pass on higher costs for iron ore and coking coal to their customers, JPMorgan Chase & Co. said. Steel prices 'could begin to include surcharges to reflect quarterly raw material price movements'. The fees would help the industry cope with expected volatility in quarterly iron ore and coking coal prices. Steelmakers are seeking to counter attempts by the iron ore mining industry to raise the cost of their main raw material. Brazil's Vale SA, the largest supplier of the steelmaking ingredient, set a precedent by breaking a 40-year custom of selling ore on a yearly contract at a fixed rate and won a 90 percent price increase from Japanese mills. Annual pricing crumbled last year as steelmakers in China failed to agree a rate with lead negotiator Rio Tinto, followed by BHP's move to cut the proportion of ore sold using the system in the second half. Increased rates for the material have created a domino effect, with steel producers pushing higher costs onto customers from automakers to appliance manufacturers.

an 3 billion euros (US$4.02 billion) of extra costs a year if iron ore and coking coal suppliers raise prices as planned, the country's steel group and largest industrial labour union said. Raw material providers are demanding increases of as much as 100 percent for their products in 2010, Germany-based Wirtschaftsvereinigung Stahl and the IG Metall Union said in a joint-statement. Price increases of that degree 'are a significant danger for the fragile recovery of steel industries and Germany's economy as a whole,” according to the two bodies.

Novolipetsk Steel, Russia's largest steelmaker by market value, plans to spend more than US$4 billion boosting output over the next three years as global demand recovers. The biggest outlays will be on accelerating construction of another blast furnace at its main factory in Lipetsk and a mini-mill in the Kaluga region. The company this year may also buy out Switzerland's Duferco Group from the two companies' 50-50 joint venture. An upgrade at the company's main Lipetsk site will not only boost capacities but also allow it to produce new grades of steel. It'll give the company access to new markets and allow it to carve out new niches in sectors, such as high-quality sheet for automakers, where it is already present. Novolipetsk, which plans to increase capacity 40 percent to more than 17 million metric tonnes in 2012, is one of the lowest-cost producers of steel slabs in the world. The steelmaker has been producing at full capacity since May even as demand in Russia, Europe and the US fell by more than a third last year. The company's fourth-quarter net income jumped 80 percent from the previous three months to US$294 million on higher steel prices and increased reliance on more advanced products, the company said in a statement.

Austrian steelmaker Voestalpine said that it was negotiating for iron ore prices both on a quarterly and an annual basis with its suppliers. The flexibility is very limited from the mining side. Hence, all of them have changed to quarterly prices. Rio Tinto moved to quarterly pricing of iron ore contracts, becoming the latest major miner to dump annual price-fixing. The world's top miner Vale and BHP Billiton have both said they have moved most of their iron ore sales to quarterly contracts. Together with Rio Tinto, the trio controls about two thirds of the total seaborne iron ore trade. Voestalpine's spokesman reiterated that the company preferred annual contracts as a majority of its contracts with its own customers were on an annual basis and added that the negotiations with miners were still underway. The company purchases its iron ore from various miners and is not dependant on one big supplier. Its biggest purchase from a single supplier, Vale, accounts for about 10 percent of its total needs.