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Vale (NYSE:VALE) Could Increase Iron Ore Prices 90%


Tuesday, March 23rd, 2010

According to Credit Suisse (NYSE:CS), Vale SA (NYSE:VALE) could raise the price of iron ore by 90 percent if they adopt what is called Platts index, which is a new way to price the raw material.

“Vale is currently pushing for a change in the iron ore price mechanism to quarterly based index pricing,” Ivan Fadel, an an analyst in Sao Paulo, said today in a note to clients. “The idea is to use an index that could accurately reflect current market conditions, so buyers and sellers would be purchasing the product at a fair price.”

There has been a battle over the last couple of years concerning the pricing of iron ore, which has sometimes been up to a year in advance, skewing the market as a mechanism to set the prices.

For the shorter term, if Vale does based prices on a quarterly basis, it is expected they will rise significantly in the short term, but be a more reliable barometer for the industry and steelmakers acquiring it for their products.

So even if iron ore prices surge, which they are likely to, it will be a more predictable way to put prices in place all participants can count on.

Iron ore demand is expected to remain high for some time to come based on China demand alone, although other countries are competing for it as well, such as China and other major steel producers.



Article by Gary B

The views expressed are the subjective opinion of the article's author and not of FinancialAdvisory.com



Tags: china iron ore , iron ore , steel makers , vale