Brazilian mining giant Vale, the world's largest producer of iron ore, has increased pricing options for some of its Southern System iron ore products for cargoes loading in January, customers said Monday.

Vale prices its Southern System brands -- Standard Sinter Feed Guaiba or SSFG and Standard Sinter Feed Tubarao or SSFT -- on a Platts 62% Fe Iron Ore Index basis for the month of loading for its term customers. It typically offers contract customers a discount for these materials that varies in response to market conditions.

Contract customers of the miner said earlier this month they had been offered a fixed $2/dmt discount for January-loading SSFG and SSFT fines, down from $3.50/dmt in December.

They said the miner was now offering another pricing option; using the per 1% silica and alumina differential published by Platts to set the discount. They can also stick with the current discount set by the company that would be subject to change quarterly instead of monthly.

The silica differential for 60-63.5%-Fe grades containing 4.5-6.5% silica currently stands at $1.40/dmt and for 60-63.5%-Fe ores with 6.5-9% silica at $1.65/dmt.

The alumina differential would be $0.50/dmt per 1% for the 1-2.5% range.

"The alumina content for both SSFT and SSFG material is typically less than 2%; we are looking mainly at the silica differential to determine the discount accorded to Southern System fines," said a steelmaker source in northeast China that has adopted Platts indices to set the discount for its contract material.

The typical silica content for SSFG and SSFT typically falls in a broader range of 5.5-7.5% and 6-6.5% respectively, Platts records showed.

Ores with a higher silica content require more coking coal and PCI to be added in the steel-making process to mitigate the high silica content.

"Choosing a indice-linked pricing mechanism would save hassle for both buyers and sellers in negotiating a discount every month," said a contractual customer in central China. "An indice that is fluctuating in accordance to market conditions is more accurate and robust than a fixed price discount that only changes every three months."

SILICA CONTENT SEEN TO INCREASE

The source said many Chinese steelmakers had shifted to the indice-linked method from the fixed price one as they anticipated the silica content of Southern System fines would increase this year due to a gradual decline in iron content.

"There are expectations that the silica content of SSFG and SSFT may even reach as high as 7% this year and that would denote more discount for these materials," the source said.

It is unclear whether the pricing option based on Platts indices would be extended to other Southern System fines such as sinter feed High Silica Guaiba fines or SFHG, which has an exceedingly high silica content of more than 8%, Platts records showed.

Sources said Vale typically offers its contract customers two pricing periods based on the Platts 62%-Fe IODEX assessments -- a monthly average or a five-day period before and after the date on which the NOR is issued at the discharge port. The NOR method is the most common, sources said.

"If you chose the NOR method to price your Southern System fines, you will also need to use the silica and alumina differential published on these dates to determine your discount," said the steelmaker in central China.

An official from Vale's Singapore office declined comment on the new pricing option Monday.