Someday readers will look back fondly at the days of year-long contract pricing for commodities such as coal, iron ore and potash. But those days are behind us, it seems.
Commodity contracts are now being written on a quarterly basis as suppliers are betting that strong demand from Asian customers will push prices upward. Teck Resources, BHP Billiton and Rio Tinto have begun short-term contracts for their coking coal. Canpotex, which represents Potash Corp. of Saskatchewan, Mosaic Canada and Agrium, has also adopted short-term prices for potash. Both Vale and BHP Billiton have done the same with iron ore.
The producers are sending a strong signal that they expect prices to rise – and quickly. The price of coking coal has jumped by 55% from last year. Analysts speculate that certain steel mills will see a 90% jump in the cost of raw materials. That means higher prices for consumers, a factor which could slow global economic growth. We will have to wait and see.
I imagine there will be some big profits recorded by shrewd producers of bulk commodities before the end of this year.