Global miners and Japanese steelmakers have reached a tentative deal to replace the 40-year-old iron ore pricing system based on annual contracts and lengthy negotiations with short-term contracts linked to the spot market.

But the miners, including Vale of Brazil and UK-based BHP Billiton and Rio Tinto, and steelmakers such as Nippon Steel, JFE, Sumitomo Metals and Kobe, still need to resolve significant obstacles to reach a final agreement, the executive added. None of the Japanese steelmakers could be reached for comment.

The understanding is the clearest sign yet of the demise of the traditional annual system, following pressure for change by the miners.

On the other hand, miners are still far from reaching a deal with mills in China and Europe.

European and Chinese steel executives are keen to maintain the annual benchmark system, arguing it has led to stable steel prices, enabling them to offer customers, such as automakers, annual steel contracts. They say quarterly iron ore prices would lead to volatile steel prices.

The steelmakers would face higher costs if they move to quarterly prices linked to the spot market. Current spot prices of $143.80 a tonne are, when adjusted for the cost of freight, more than double the $60 level at which the annual iron ore contracts were settled for the 2009-10 year ending in April.