Background Note | HBS Case Collection | January 2010

In the Spotlight: The Market for Iron Ore

by Aldo Musacchio, Tarun Khanna and Jenna Bernhardson

Abstract

This note discusses the structure and functioning of the market for iron ore. This market has traditionally functioned using a benchmark pricing mechanism, in which large steel mills in Japan (now in China) negotiate the benchmark price with the largest of the big three iron ore producers (Vale do Rio Doce). Yet this market is changing rapidly, with the rise of China as the main consumer of iron ore the rules seem to be changing. The note examines the increasing importance of the spot market for iron ore and the advantages and disadvantages of abandoning the benchmark price system for both consumers and miners.

Keywords: Industry Structures; Mining; Price; Valuation; Business Strategy; Demand and Consumers; Business and Government Relations; Mining Industry; China;

Citation:

Musacchio, Aldo, Tarun Khanna, and Jenna Bernhardson. "In the Spotlight: The Market for Iron Ore." Harvard Business School Background Note 710-049, January 2010.