NEW YORK - Iron ore and coal producer Cliffs Natural Resources Inc said much of its iron ore volume is subject to fluctuating prices on the spot market, after the world's three biggest miners abandoned their decades-old system of setting fixed prices once a year.
"Final pricing and the replacement of what has historically been the annual benchmarking system continues to evolve," Chief Executive Joseph Carrabba told a conference call.
"Although we have determined final pricing mechanisms or final pricing for a significant amount of our anticipated 2010 global iron ore sales, much of our volume remains provisionally priced or will be subject to the influence of the spot market."
Under the benchmark system, steel producers negotiated a fixed annual iron price with suppliers.
The decision by the world's top three miners, Vale SA, Rio Tinto and BHP Billiton, to scrap the decades-old system and switch to quarterly contract prices, coupled with resurgent demand, has helped boost spot iron ore prices.
Prices for the commodity touched a high of over $180 per tonne in April, when the benchmark system was scrapped, but fell steeply soon after. However, spot prices are up over 15 percent in the past two weeks.
"The majority of producers supplying the Asian iron ore markets appear to be transitioning toward mechanisms utilizing shorter pricing periods that more accurately reflect spot prices," Carrabba said.
"In contrast, suppliers to the North American and European iron ore markets appear to be partial to negotiating some type of annual pricing where possible."
On Wednesday, the company reported a surge in quarterly profit, boosted by higher volumes and prices. Cliffs also raised its forecast for full-year Asia Pacific iron ore sales, but maintained its North American iron ore sales outlook for the period.
The company said it had determined final pricing for about 45 percent of its 2010 expected North American iron ore sales volume, and expects revenue per tonne between $107 and $112.
But it expects slightly higher revenue per tonne of between $100 and $115 on its Asia Pacific iron sales.
Shares of the company were up 2.4 percent at $55.44 Thursday on the New York Stock Exchange. The stock has traded in a range of $23,69 and $76,14 over the past year.
Source: Reuters