Bulletin – September Quarter 2013 The Relationship between Bulk Commodity and Chinese Steel Prices Abstract

Iron ore and coking coal are complementary inputs for steelmaking and therefore their prices are closely related to steel prices. Historically, trade in iron ore and coking coal was based on long-term contracts, but in recent years there has been a shift towards shorter-term pricing, including on the spot market, and consequently prices reflect market developments more quickly. This article analyses the relationship between the spot prices for iron ore, coking coal and Chinese steel products, and finds that in the short run the spot price for iron ore has tended to overshoot its long-run equilibrium following an unexpected change in Chinese steel prices.

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