Despite opposition from steelmakers, the iron-ore benchmark pricing system may be on its way out, according to a report published by the United Nations Conference on Trade and Development (Unctad) Iron Ore Trust Fund, together with the Raw Materials Group.

"It appears likely that trade in iron-ore will become more diverse and will utilise a more varied range of pricing methods with shorter term arrangements and flexible pricing systems playing a larger role...the benchmark negotiating system seems to be doomed," Unctad said in an emailed statement on Thursday.

Iron-ore prices have historically been negotiated annually in closed-door talks between individual miners of the steelmaking ingredient and their customers in Asia and Europe, and, once one set of agreements is concluded, the other miners generally follow with similar arrangements.

However, miners have begun to hint strongly that they want to see a shift to more transparent, market-related pricing.

BHP Billiton, the world's largest mining group and the only one of the big-three iron-ore producers that has yet to finalise this year's contract agreements, has been particularly vociferous in its criticism of current pricing mechanisms.

BHP and iron-ore number-two Rio Tinto have both also said that they want a so-called 'freight differential' to reflect to reflect the lower costs of shipping ore from their Australian mines to Asia, than from competitor Companhia Vale do Rio Doce's mines in Brazil.

In February, Vale, the biggest iron-ore producer, agreed with steelmakers to increases of 65% for fines and 71% for lump iron-ore.

Four months later, Rio Tinto announced it had secured an overall 85% increase (lump prices will rise by 96,5% and fines prices will increase by 79,88%) from key Asian customers.

BHP Billiton CEO Marius Kloppers said last month that the company was seeking greater transparency in its iron-ore pricing, and wants to sign more contracts linked to spot prices and pricing indexes.

TIGHT UNTIL 2011

The iron-ore market will most likely remain tight until 2010, or possibly 2011, according to the Unctad report, published this week.

"There are several indications that prices will increase further in 2009, but the outcome for the following years is more uncertain."

World production of iron-ore grew by 9% in 2007, compared with 11%in  2006, to reach 1,6-billion tons.

Output increased mainly in the four biggest producing countries Brazil, China, Australia and India, with Chinese mine production rising by 20%.

World iron-ore exports increased by 8,1%, from 6,1% a year earlier.

Brazil is now the leading exporter, at 269-million tons, after overtaking Australia.

Indian exports grew for the seventh consecutive year and, at 94-million tons, the country is the third most important exporter, "clearly" ahead of South Africa, Canada and Russia, Unctad said.

China accounted for 41% of world iron-ore imports.

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