Iron Ore Prices To Rise
BHP, Rio Tinto Profit Estimates Raised by Merrill (Update1)
June 30 (Bloomberg) -- Rio Tinto Group and BHP Billiton, the world's second- and third-largest iron ore exporters, had their profit estimates raised by Merrill Lynch & Co. on speculation prices of the steelmaking raw material may reach another record next year.
Iron ore prices, which increased a record 71.5 percent this April, may gain another 5 percent next year as supplies can't keep up with demand fueled by China, Merrill Lynch analysts led by Vicky Binns said. Binns, who visited BHP Billiton and Rio Tinto mines this month, is revising a forecast made in Feb. 25 that expected iron ore prices to fall 20 percent next year.
Merrill Lynch joins other brokerages in a survey published by Bloomberg on June 20 in predicting record iron ore prices next year. BHP Billiton told analysts this month demand may outstrip supply till 2008 and 2009, as steel consumption is rising in China and miners need time to expand output.
``Iron ore has been the single biggest contributor to BHP upgrades,'' said Merrill Lynch in a note dated June 30. ``The iron ore supply-demand fundamentals do speak for themselves, even assuming very slow growth in demand.''
BHP Billiton, the world's largest miner based in Melbourne, may post profit of $9 billion in fiscal 2007, and $8.2 billion in fiscal 2008, Merrill Lynch said, raising its forecasts by 21 percent and 27 percent respectively.
London-based Rio Tinto, the world's third largest miner, may post a 2006 profit of $4.7 billion, and a 2007 profit of $3.9 billion, the brokerage said, raising its estimates by 14 percent and 22 percent respectively.
Same as Vale
Iron ore prices will stay at records in the next two years due to continued demand from steelmakers in China, the world's biggest user of the alloy, Credit Suisse First Boston said yesterday, citing Brazil's Cia. Vale do Rio Doce, the world's largest exporter of the raw material.
Binns and Vale's forecasts contrast with a call by Investec Plc.'s analyst Nick Hatch, who said prices of iron ore may fall 10 percent as China and Australia boosted port, rail and shipping capacity for the raw material.
Shares of BHP Billiton rose 2 cents, or 0.1 percent, to A$18.15 in Australia. Shares of Rio Tinto rose 2 cents, or 0.04 percent to A$44.82.
Higher iron ore production helped raised Rio Tinto's profit forecasts by $248 million between 2005 and 2007, Merrill Lynch said. The brokerage also raised estimates for coking coal, also used in steelmaking, by 10 percent to $138 a ton, for next year.
BHP Billiton
Rising coal and oil prices as well as purchase of WMC Resources Ltd., the world's fifth largest nickel metals producer, this month, also caused the revision in BHP Billiton's earnings estimates, Merrill Lynch said.
BHP Billiton is the world's largest exporter of coal used in steelmaking. It gets 24 percent of its pretax income from its carbon steel materials unit, which sells coal, iron ore and manganese, its second largest profit contributor. Its petroleum unit is the third largest contributor to pretax income.
Higher iron output and prices will add $2.2 billion to BHP Billiton's profit between fiscal 2005 and fiscal 2008, Merrill Lynch said.
Rio Tinto may get half its profit from selling iron ore by 2007, up from 35 percent this year, Macquarie Bank Ltd. said on May 18. BHP could get a quarter of its earnings from the ore in the next 12 months, compared with 15 percent in the past two years, Macquarie Bank said.
Merrill Lynch has `neutral' recommendations on both BHP Billiton and Rio Tinto's stock, and suggests investors buy BHP stock at between A$16 and A$17 a share, and Rio's stock at less than A$42 a share.
To contact the reporter on this story:
Tan Hwee Ann in Melbourne at hatan@bloomberg.net
Last Updated: June 30, 2005 03:27 EDT
