Re: MGX
Just thought this is worth a mention in this thread:
"Iron ore prices will jump again: brokers"
http://www.thewest.com.au/20050917/business/tw-business-home-sto132266.html
"China will have to wait at least another two years before extracting its threatened revenge for February's unprecedented 71.5 per cent price increase for iron ore, with most analysts now predicting another big rise next year.
Investment bank UBS led the charge yesterday, staging an amazing about face to predict iron ore prices would rise 10 per cent next year and "rollover" in 2007. Previously one of the sector's more pessimistic observers, UBS had been forecasting prices would fall 20 per cent in both years.
UBS attributed its change of heart to its revised forecasts for Chinese steel production, which it now expected to grow by another 8 per cent in both 2006 and 2007.
Previously, most analysts had believed Chinese government efforts to slow domestic growth and inflation, including cutting the number of iron ore import licences and curbing construction of new small-scale steel mills, to have a greater impact on steel output.
But Chinese growth continues to run rampant and while Beijing's decision to allow limited appreciation of the yuan has also marginally increased the buying power of Chinese industry.
"We expect strong steel production growth to keep the iron ore market tight for the next 12 months, allowing iron ore miners to push through another price increase," UBS analysts Daniel Brebner and Glyn Lawcock said in a client note yesterday.
Fellow investment bank Credit Suisse First Boston has also flagged the possibility of another 10 per cent increase in 2006, from the previous consensus forecast of rollover, while UK merchant bank Investec upgraded its forecast from a 10 per cent fall to rollover next year.
Dallas Horodam, from metals forecaster AME Mineral Economics, said the market was finally catching on to what had been obvious for some time.
"We've been forecasting an increase for most of the year in the range of 5 to 10 per cent," he said "And if you look at the gap between spot prices and contract prices, it could be higher."
Spot prices in China are typically $US20-$US30 a tonne higher than the $US50 per tonne paid for contracted lump ore from the Pilbara. Australian ore also costs Asian buyers about $20 a tonne less than ore from Brazil because of the greater shipping distances from South America.
Earlier this year, BHP Billiton almost sparked all-out war with China when it demanded an extra $US10 per tonne to recoup some of the so-called freight differential, on top of the 71.5 per cent increase already agreed with other suppliers.
BHP Billiton's demand inflamed an already tense situation, coming after Chinese industry chiefs and government officials repeatedly warned that gouging customers while supplies were tight could irreparably damage Australian miners relationships with Chinese buyers.
But Mr Horodam said China's threats to exact revenge were unlikely to find much traction for the next few years, especially as only the world's big three miners were set to increase output substantially before the end of the decade.
Big ticket expansions are set to lift BHP Billiton's output from 104 million tonnes this year to 118 million tonnes in 2006, while Rio Tinto's Pilbara mines will produce about 170 million tonnes, up from 140 million tonnes in calendar 2005."
Very interesting, mabey very profitable too.