The FT reports:
The deal by Vale of Brazil and Anglo-Australian BHP Billiton with Japanese and Chinese mills marks the end of the 40-year-old benchmark system of annual contracts and lengthy price negotiations. The industry instead agreed to move to quarterly contracts linked to the nascent iron ore spot market.
“The benchmark system has ended. There is no comeback,” said a senior mining executive directly involved in the talks.
The world’s top ore miners stand to profit hugely in the short term from the new price system. One executive estimated that the profits of the big three producers, Vale, Rio Tinto and BHP Billiton, would be boosted by at least $5bn this year.
Those BHP puts I bought as a quasi-hedge on AYSI should plummet even further now, but maybe it will cost less to reload. I guess that depends in part on to what extent this iron ore news is already priced into the BHP shares.
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