Steel industry to face big iron ore price hike
23 Oct, 2007, 0700 hrs IST, REUTERS
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SYDNEY/HONG KONG: The world’s steel industry is bracing for a sixth straight year of iron ore price hikes as mining companies strive to keep up with growing demand led by China, the world’s biggest market. Iron ore prices are expected to rise 25% starting April 1, 2008, said some analysts, with some looking for a 50% hike in prices.
With the forecast showing coking coal is also on the rise, the world’s steel industry will have to decide how to deal with rising costs for its two main natural resource inputs, costs that may have to be passed on to end users.
“Markets are exceptionally tight currently, as evidenced by the surge in Chinese spot prices,” said Macquarie Research Commodities, which revised its forecast price increase to 50% from 25% this week.
“This is due mainly to booming Chinese and world steel production, the shortfall in expected iron ore production from Australians and Brazilians and slowing growth in Chinese domestic production,” the bank said last week.
Macquarie joins a swelling number of forecasters upping iron ore price predictions as major steel companies in China, Japan and Europe face off against miners CVRD, Rio Tinto and BHP Billiton. Traders said spot prices for ore from India have been rising to new records weekly, tipping a rise in contract prices of ore mined in Brazil and Australia.
Indian iron ore traded last week at $185 a tonne delivered in China, versus $160- $170 for Brazilian and under $100 for Australian term prices.
The sometimes acrimonious iron ore negotiations are the basis for industry benchmark prices and typically conclude around January each year, although at times have dragged well into the new year as tonnage levels are also established.
In this round, the issue of price differentials caused by freight rates to China from Australia versus China from Brazil, which BHP unsuccessfully tried to have addressed two years ago, is set to re-emerge , and is likely to delay settlement . BHP has argued that Chinese steel mills and other importers benefit from lower freight costs for Australian iron ore, and wants Australian ore to carry a premium to reflect the smaller shipping costs compared with Brazil.
Merrill Lynch upped its forecast to a to 50% jump from 30%. “With Chinese iron ore demand up 22% in 2007 and global demand growing at 11%, China finds itself in a weak position ahead of negotiations,” Merrill Lynch sector analyst Vicky Binns said in a report. Availability of iron ore is tighter than it was in the 2005 shipping year when contract prices rocketed 71%, Binns noted.
Iron ore prices last year rose a more modest 9.5%.
Morgan Stanley has joined Merrill and Australia’s Macquarie Bank calling for a 50% hike, citing holes in China’s domestic ore supplies and other setbacks
RHP
