Iron ore prices likely to gain 35 % next year

Print this page Posted on : 08-30-2007 by recycleinme.com

Iron ore prices may gain 35 per cent next year as producers led by Cia Vale do Rio Doce, the world’s biggest exporter of the steelmaking ingredient, seek to benefit from surging demand in China, RBC Capital Markets said.

10% GAIN FORECAST

Rising consumption and limited supplies may continue for two years, RBC analysts Mr. Chris Lancaster and Mr. Michael Chandler said in a report. The brokerage had forecast a 10 per cent gain.

China overtook Japan as the largest buyer of iron ore in 2003 because of increased production of cars, buildings and appliances.

Prices have risen for the past five years to a record helping Brazil’s Vale, London-based Rio Tinto Group and Melbourne-based BHP Billiton Ltd boost profits.

“Demand, particularly from China, has continued unabated, while supply from almost every producer remains constrained,” the RBC analysts said in the report.

The price of Hamersley fines ore, produced by Rio Tinto in its Australian mine, rose 9.5 per cent to $51.47 a tonne this year.

DETERMINING FACTORS

A gain of 35 per cent would take it to $69.48 a tonne next year. Prices are determined by the content of iron in the ore. Reference prices are usually taken from fines ore as it represents 60 percent of the traded market.

China, the world’s largest producer of steel, may raise output of the alloy by 14 per cent this year, the China Iron and Steel Association said July 30. The nation’s imports of iron ore jumped 19 per cent in the first seven months of this year as steelmakers increased production to meet demand, according to data from the Beijing-based Customs General Administration.

RBC’s increased forecast follows similar revisions by brokerages in the past three months. UBS AG in July raised its iron ore price forecasts to a 25 per cent gain in 2008, up from 10 per cent. Goldman Sachs JBWere Pty last week raised its forecasts to a 30 per cent gain, form 9 per cent.

MEET WITH CHINESE

Credit Suisse Group in June raised its forecast to a 25 per cent gain, which it reiterated on August 21. Executives from 16 Chinese steelmakers met with Vale recently to discuss supply, Credit Suisse’s analysts said in the August report.

Source : Business Line