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The daily Metal Bulletin 65% Fe Brazilian Premium index cfr Qingdao has fallen from an average of $13.38 per tonne in January to $8.91 per tonne in March.
On February 7 the index reached a year-to-date-high of $15 per tonne, before falling to a year-low of $7 per tonne on March 20. The index recovered by March 31 to reach $10.50 per tonne and has been stable since.
The fall comes as Chinese mills, suffering from tighter credit, are unable to pay high premiums for good quality fines.
The fixed premium for the first quarter for Carajas fines was $9 per tonne, with the rate determined via negotiation between Chinese mills and Brazilian miner Vale.
The pricing system is now understood to be under review allowing customers potentially to determine the price of high grade fines by using two floating prices. This would eliminate the need to negotiate a fixed premium.
New pricing mechanism
Vale is offering Chinese mills an alternative pricing option to settle second quarter contracts for high-Fe content Carajas iron ore, Steel First understands.
Mills can opt for a new formula based on the Metal Bulletin 62% Fe iron ore index in combination with the Metal Bulletin 65% Fe Brazilian Premium index: (MBIO62% index+65% premium)/65%*Actual Fe content, sources at several Chinese steelmakers told Steel First this week.
Under this new pricing model, mills would have paid $131.57 per tonne for first quarter contracts.
Metal Bulletin launched the daily 65% Fe Brazilian Fines index on January 6, 2014.
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The spot premium for 65% Fe Brazilian fines has dropped by more than one third since the start of the year.