Originally Posted by
WingNut60
True. But many people are misled into thinking that the spot pricing reflects actual revenue.
The vast bulk of the iron ore sold from W.A. is sold on long-term contracts which are at a rate considerably below the oft-quoted newspaper headline prices but are a more secure revenue source for the larger producers.
The manner in which iron ore export contracts are structured has changed significantly over the years. Long gone are the days of the Japanese steel industry calling in BHP and Hamersley sales execs and essentially setting an annual price. Once Chinese demand created a seller's market the pricing structure evolved to include regular price reviews; first six monthly, then quarterly and eventually to what we see these days where most contracts have a monthly price review mechanism.
So, yes, there is a difference between spot and contract prices but the margin is nowhere near what it once was.
It was that evolution in contract pricing that led the WA government to make more frequent adjustments to the commodity index value that is applied to calculate royalty payments.