Rio Tinto, the world’s biggest producer of iron ore after Brazil’s Vale SA, saw its earnings increase 125 percent to $5.77 billion in the first half of 2010. The company earned just $2.56 billion during the same period in 2009.
The British-Australian mining company was aided by rising iron ore prices, which provided 70 percent of the company’s profits this year. Iron ore currently trades at spot around $120 ton, more than twice last year’s benchmark price.
The company also benefited from rising copper prices – that key industrial metal has seen futures climb over 75 percent in the past year. In fact, commodity prices have been generally beneficial for the company; aluminum is up 50 percent, while gold has climbed 26 percent.
The pricing system for iron ore changed recently. In the past, steelmakers bought iron ore in annual contracts created in complex bilateral negotiations. In 2009, many of them decided to abandon that system and instead buy ore on the spot market, throwing the system into chaos.
Now, the companies are signing quarterly contracts with prices linked to the spot market. But intra-quarter fluctuations in spot iron ore prices stresses the system, and many believe that a new paradigm will emerge before long.