Rising iron ore spot price augers well for miners

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

31 Dec 2009

The cash price for iron ore delivered to China, the world's biggest buyer, rose the most in more than five months on concern exports from India will slow, boosting expectations for producers in annual price talks. The price of 62 per cent iron-content ore delivered to Tianjin port jumped 5.4 percent to $US118.20 a metric ton yesterday, according to prices from The Steel Index.
That's the highest this year and the biggest one-day gain since July 10.
Cash prices have more than doubled from their 2009 low in March because of demand from steel mills in China, the biggest user, that's prompted brokers to raise contract price forecasts and India to impose a duty on its ore exports to boost domestic supply. Vale SA, the world's largest producer, said this month it may delay starting contract talks until early next year.
"It's perfect timing for the producers, they must be rubbing their hands," ANZ analyst Mark Pervan said.
"The Chinese will be particularly annoyed because they were probably looking to negotiate early this year."
Australia's third-biggest exporter, Perth-based Fortescue Metals Group, advanced 2 per cent to a four-month high of $4.44 at the close on the Australian stock exchange.
BHP, the world's third-largest exporter of the ore, rose one per cent to $43.12.
Rio Tinto, the second-biggest, increased 0.3 per cent at $74.89.
The cash price, which has jumped 19 percent in four weeks, is trading at 57 percent more than the current contract price, said ANZ's Pervan, who will be revising his own forecast to more than 30 percent from 20 percent. Iron-ore suppliers hold annual talks with steelmakers to fix contract prices for the 12 months from April 1, the start of the Japanese financial year.
The four-decade-old annual iron ore pricing system was fractured this year after Chinese mills failed to reach agreement with the three largest suppliers, boosting demand for cargoes settled on the cash market. Producers earlier agreed to a 33 percent cut in contract prices with mills in Japan and Korea as worst global recession since World War 2 cut demand.
Shipments from India, the world's third-largest exporter, may be at least 4.5 per cent below an earlier forecast after the government raised duties, the Federation of Indian Mineral Industries said yesterday.
India said December 24 it had imposed a 5 percent duty on exports of iron-ore fines and doubled the tax on iron-ore lumps to 10 per cent.
"There has always been that risk that India was going to start to try secure more of its domestic supply," ANZ's Pervan said.
"The market is expecting a pull-back in Indian exports. Really at the end of the day iron ore is a location story. If you can't get it from the closest source which is India, you get it from the second-closest source, which is primarily Australia."
Rio Tinto said this month it had agreed to sell ore to India's Essar Steel for the first time.
India, traditionally an iron ore exporter to China, plans to spend $8.95 billion in the year ending March 31 to improve infrastructure and boost economic growth.
The global trade is worth about $160 billion a year.
The China Iron & Steel Association said there was a "large degree of difficulty" in the annual talks as producers are seeking a 20 per cent to 30 percent increase, Dow Jones reported yesterday, citing the China Securities Journal.
Rio Tinto this month appointed a new chief negotiator with Asian steelmakers after four of its executives were detained by China in July.
China may import 70 per cent of its iron ore needs this year, up from 50 percent last year, Baosteel's Chairman Xu Lejiang said Dec. 3. Imports rose 12 percent last month as steelmakers boosted output to meet demand from makers of cars and appliances.
Analysts at Macquarie Group and JPMorgan Chase this month raised forecasts for annual contract prices after a surge in Chinese demand.
Macquarie estimates prices may rise 30 percent while JPMorgan joined UBS and Goldman Sachs JBWere in predicting a 20 per cent gain.

Source: Bloomberg