Vale Reaps Rewards of New Iron Ore System

Vale, however, didn't attribute that radical improvement to any shift in the global iron ore pricing system. No, it was demand pure and simple -- the forces of the unadulterated market force -- that sparked the inflation, according to Vale. Said the company in its earnings release [all sic], "The rebound in global manufacturing activity, which has retraced a significant part of the peak to recession trough decline, has contributed to fuel a substantial demand expansion for minerals and metals and the strongest price rise seen in recoveries out of the last five global downturns."

According to Vale, by dismantling the old, annual benchmark system, it and its Aussie brethren have done the world's industrial supply chain a major service. Said Vale, "2Q10 marks the first quarter with the implementation of the new pricing regime for iron ore. The move towards price flexibility brings more efficiency and transparency to iron ore pricing and allows the recognition of quality differences, contributing to stimulate long-term investment." (Vale's open pit mines in the Amazon rain forest do, it's true, produce the highest-grade iron ore on earth.) "In addition, clients are able to know beforehand the price to be paid in the following quarter, thus facilitating cost control and inventory management."

There's some irony here -- in addition to self defense. Vale's own customers in both Asia and Europe have, after all, accused it and the two Australian behemoths of price fixing, a challenge that Vale executives have been forced to answer in public over the last weeks and months. Steel industry groups in both China and Europe have are seeking to spur their respective governmental anti-monopoly officials into full-scale investigations.

So far, though, it's been a lot of bluster, and in the ongoing battle between steel and iron ore, iron ore is winning.

-- Written by Scott Eden in New York

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