Iron Ore Price Rises
Could be some interesting stuff going on this month if the banks are right.
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Bank flags 30pc iron ore rise
JOHN PHACEAS
Chinese sabre rattling over unacceptably high iron ore prices looks certain to fall on deaf ears when annual price talks resume this month, with fresh industry research indicating prices could rise another 30 per cent in 2006.
In two separate client notes, US investment bank Merrill Lynch said iron ore suppliers were still unable to keep pace with China-fuelled demand growth despite committing billions to upgrade the capacity of mines in the Pilbara and Brazil.
"China's ramp-up in crude steel capacity to an estimated 430 million tonnes by 2005 from 127 million tonnes in 2000 has put increasing pressure on Chinese and global iron ore supply, leading to a substantial increase in imports," the bank said.
It believed forecasts that Chinese ore imports would double from 208 million tonnes in 2004 to 420 million tonnes in 2010 were "way too conservative".
It did not change its base-case expectation that iron ore prices will rise 10 per cent in 2006 and remain flat in 2007, but said it now believed there was a strong chance prices could rise even more.
"Our forecast remains for a plus-10 per cent outcome, however the very tight market and large deficit we forecast is pointing to a potential 20-30 per cent settlement," Merrill Lynch said.
Merrill Lynch is the most bullish of the big investment banks on iron ore prices, but most are now predicting prices will rise 10-15 per cent next year ahead of a rollover in 2007.
That puts miners on a collision course with Chinese steelmakers, who are hoping prices will fall 5-10 per cent next year in the wake of February's massive 71.5 per cent jump.
But BHP Billiton has already flagged it could again seek an extra premium to recoup the so-called freight differential with supplies from Brazil. Australian ore already costs Chinese buyers about $US20 ($26) a tonne less to import than Brazilian ore because of the shorter shipping distance.
Still, freight rates have plunged in recent months and Merrill Lynch said a 10 per cent price rise could be claimed as a victory by both sides.
"Landed iron ore (prices) in China may prove to be at levels similar to those in 2005," it said.
But to boost their negotiating power and lock in future supplies, Chinese steelmakers have been aggressively investing in new iron ore mines, especially in Australia.
Andrew Forrest's Fortescue Metals Group, which is planning a $2.4 billion iron ore development in the Pilbara, and emerging WA miners Midwest Corporation, Murchison Metals and Mount Gibson Iron have all drawn substantial interest from Asian steel mills.
At Fortescue's annual meeting yesterday, Mr Forrest said he remained confident of securing financing for the 45 million tonnes a year project within four months.
"We believe that putting together the finance package is only a matter of time, and we have made very good progress, I think, on a number of fronts with that," Mr Forrest said.
"Unfortunately, because of the delicate nature of those discussions I can't be specific."
Fortescue's preferred option was to sell equity in its Chichester Range project to a major joint venture partner, and it was open to "all options", including potential partnerships with Chinese steel mills, he said.
Iron ore shares rose across the board yesterday. Rio rose $1.62 to $59.80, BHP climbed 26 ¢ to $21.35, Fortescue added 8 ¢ to $4.85 and Mt Gibson rose 2.5 ¢ to 81.5 ¢.
from:
http://www.thewest.com.au/20051109/business/tw-business-home-sto132677.html
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Looking very interesting.