May 31 (Bloomberg) -- NMDC Ltd., Asia’s third-largest iron- ore miner, doubled its prices for Japanese and South Korean mills including Nippon Steel Corp. and Posco and switched to quarterly contracts following biggest global supplier Vale SA.

NMDC, which sold about 15 percent of its output overseas last year, will export fines with 63 percent iron content at about $122 a metric ton free-on-board this quarter, Finance Director Swaminathan Thiagarajan said today in an interview. Talks with overseas buyers ended last week and prices for local sales may be increased by middle of next month, he said.

Iron ore miners are seeking to capitalize on spot prices, which more than doubled in the past year. Vale broke a 40-year system of negotiating annual key contracts in March when it agreed on new quarterly prices with Japanese buyers. BHP Billiton Ltd., the world’s largest miner, has also switched to quarterly pricing.

“The rise in iron ore prices was expected and most of the increase has been factored in NMDC’s share price,” said Giriraj Daga, an analyst with an “avoid” rating on the stock at Khandwala Securities Ltd. in Mumbai. “I expect up to a 90 percent increase in prices for the local mills.”

NMDC shares rose as much as 7.1 percent to 284.80 rupees and traded at 284.10 rupees as of 10:49 a.m. in Mumbai. The Bombay Stock Exchange’s key Sensitive Index rose 0.3 percent.

Price Lock

More iron ore is shipped across oceans than any other dry bulk commodity, and the market is forecast by Credit Suisse to total 1 billion metric tons this year. Most sales were based on an annual benchmark price until this year, when the largest miners switched to sales based on quarterly contracts and single cargoes. The use of derivatives is forecast to grow as buyers and sellers try to lock in prices.

“We may opt for a derivatives-based pricing mechanism,” Thiagarajan said. “It will be difficult to reach out to customers and negotiate prices on a quarterly basis.”

The company had raised prices of iron-ore fines for local mills by 35 percent to 2,600 rupees ($59), Thiagarajan had said on April 5.

NMDC’s output is likely to increase more than 23 percent to 37 million tons from December after it starts operating a new mine in Bailadila in the eastern state of Chhattisgarh, Thiagarajan said today.

The company, which plans to lift production to 50 million tons by end of fiscal 2015, is in the process of building the 11B Bailadila mine and will start production by December. The annual capacity of the mine will be 7 million tons, Thiagarajan said.

--Editors: Indranil Ghosh, Keith Gosman

To contact the reporter on this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net

To contact the editor responsible for this story: Hwee Ann Tan at hatan@bloomberg.net

Sourced from www.businessweek.com