Chinese steelmakers are unwittingly helping the world's biggest iron ore miners tighten their grip on global production by demanding to pay for shipments of the raw material based closely on depressed spot prices.
The three largest and most profitable iron ore producers - Australia's Rio Tinto and BHP Billiton, along with Brazil's Vale -- have been happy to sell at or near spot despite plunging iron ore prices, while their smaller rivals struggle to make money.
Smaller producers, including some higher cost Australian miners, want to continue with deals based on longer-term averages of prices, looking to hedge against further falls in the market.
But buyers in the world's largest consumer of iron ore are having none of it, with many Chinese mills demanding cargoes priced as close as possible to their delivery date.
"Pricing moves around with the steel mills. It used to be all based on a monthly average. Now you find the steel mills and traders perhaps trying to anticipate low points and suggesting quotation periods of maybe two weeks," said Morgan Ball, chief executive of Australian iron ore miner BC Iron Ltd.
"It makes sense for Chinese steelmakers now, as prices fall below $50 a ton for the first time since at least 2008. But they run the risk of entrenching the market dominance of the Big Three ore suppliers, with fewer competitors surviving to offer contracts priced on longer averages if the market finally rebounds."
Rio and BHP did not respond to requests for comment, while Vale declined to say anything on the issue.