The effect of a change in pricing regime on iron ore prices

This paper performs a quantitative analysis of iron ore prices. The analysis will focus on two general issues. First, are prices more volatile before or after the introduction of spot market pricing in 2008/2009? Second, has the change in pricing regime had a significant effect on the iron ore price? The quantitative analysis uses monthly data between January 2003 and August 2012. The overall results show that when including transportation costs to the price series we do not find that iron ore prices are more volatile after the introduction of spot market pricing. Furthermore, the change in pricing regime does not have a significant impact on the iron ore price in the econometric model. Iron ore prices, GDP growth in China, and the freight rates are found to be cointegrated (when regressed with a market dummy variable), and the short run results indicates that GDP growth in China has the strongest impact on the iron ore price series for the period tested.