Australia in iron ore price deal

The way iron ore prices are decided is unlike other commodities

Australia's Fortescue Metals has sealed a deal to supply iron ore at discount prices in China, in return for $6bn (£3.6bn) in financing.

The prices are 3% cheaper than those offered to Japan and South Korea.

The deal comes amid tension between Australia and China after the detention of a Rio Tinto senior executive, alleged of spying.

Separately, BHP Billiton said greater transparency over steel prices would prevent such events in the first place.

Transparency

On Monday, Fortescue said it had agreed to sell iron ore fines - the most commonly traded iron commodity, at 94 US cents per tonne unit, provided it would get financing of up to £6bn.

Fortescue chief executive officer Andrew Forrest said ongoing market speculation had promoted "unprecedented iron ore and steel price volatility".

This in turn had created "extreme production uncertainties for Chinese steel mills and for suppliers setting individual contracts with those mills".

While CISA, China Iron & Steel Association, applauded the deal, it had previously hoped for a bigger discount.

Transparent

Currently, iron ore prices are decided in yearly, secret talks between major suppliers, including BHP Billiton and Rio Tinto, with customers such as China's state-owned steelmakers.

This is in contrast to the way prices of most other minerals are set - they are decided by the market and change daily.

Alex Vanselow, chief financial officer with the world's largest mining company, said BHP Billiton had been in favour of market-based pricing mechanisms for iron ore.

"Nobody asks us what the price of copper is every day or what the price of copper is expected to be 12 months from now," Mr Vanselow told Australian Broadcasting on Sunday.

"People just pull out their screens, look at the curve and they have a good idea. It should be no different for iron ore."

Four Rio Tinto employees - Stern Hu and his Chinese colleagues Liu Caikui, Ge Minqiang and Wang Yong - face allegations of using "improper means" to obtain "commercial secrets" about China's steel and iron industry, China's official news agency Xinhua has reported previously.

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