London, 10 October 2011: Reuters

Pricing for steel ingredients iron ore and coking coal is likely to move to shorter-term index-based mechanisms, Jim Cochrane, chief commercial officer of Kazakh miner ENRC, says. The top three iron ore miners Vale , Rio Tinto and BHP Billiton dumped a decades-old annual scheme last year in favour of quarterly pricing.

Although most steelmakers still hope for a return to the annual benchmark, which allowed them to better control their costs, shorter-term deals look inevitable to many in the industry.

"I think the quotation period will come closer to the market," Cochrane told Reuters in an interview. "I believe that an established market price is here to stay." London-listed ENRC produces iron ore, ferrochrome, alumina and aluminium, copper, cobalt and also owns a coal project in Mozambique.

It sells iron ore to Chinese customers using a quarterly price broadly based on the Platts iron ore index while for iron ore sales to Russian steelmaker Magnitogorsk Iron and Steel Works (MMK) it applies the same methodology as Vale. Brazil's Vale uses a quarterly system in which prices are decided by a three-month average of the Platts North China 62 percent FE CFR index beginning four months before the relevant quarter.

"For me (this mechanism) is not workable in the long term. I just think that they will shorten the period by which they establish the price," Cochrane added. Almost all of ENRC iron ore is sold on long-term contracts rather than on a spot basis. Pricing mechanisms for coking coal and aluminium are also likely to change soon, according to the miner.

"I think that over time most prices will move towards a shorter-term pricing mechanism based on indices," Cochrane said. "Probably for alumina as well, although the argument for alumina is less strong because it's effectively market-priced anyway as it varies as a percentage of the aluminium price, but I do think there is some momentum to move to index-based prices."

ENRC coal assets in Mozambique are located near coal mines owned by large miners such as Vale and Rio Tinto's Riversdale, and Cochrane said a partnership to build logistics with these companies is very likely.

"I do think that you will have to have some sort of partnership for logistics. There will be a solution and it will be a solution of a consortium of the major producers," he said.

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Reuters – for Commodities Now with permission.