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Iron ore prices set for fresh records
July 19, 2005
Record iron ore prices may extend their gains by another 10 percent next year as supplies of the steelmaking raw material from India slow and steelmakers in Asia raise output, ABN AMRO said.

Benchmark prices for so-called iron ore fines, which account for 60 percent of global trade in the ore, may rise to 69 US cents (HK$5.38) a dry metric ton unit for the year starting April 1, 2006, analysts Robert Clifford, Warren Edney, Nick Moore and Michael Sones said in a July 12 report.

Global steel output rose 10 percent in May, led by surging production from China, the world's largest producer, according to the International Iron & Steel Institute. India, the world's third-largest iron ore exporter, can't match ore exports growth achieved last year, Clifford said.

``Demand is going to remain strong given that global steel production is still going up,'' the Melbourne-based analyst said July 15. ``India will have trouble meeting exports as it has drawn down stocks and the steel lobby wants to keep as much iron ore in the country as possible.''

Fines ore is so named because of its powder-like form. Prices of lump ore, which is easier to process than fines, would also rise 10 percent to 88 cents a dry metric ton unit, the report said. ABN previously expected prices to stay unchanged.

Iron ore prices rose 71.5 percent to a record this year because of demand from China, driving profits for miners such as Rio Tinto, Melbourne-based BHP Billiton and Brazil's Cia. Vale do Rio Doce.

China lifted steel production by a record 38 percent in May, adding tonnage equal to almost the supply of Germany, France, Spain and the UK combined. Output grew 37 percent in June, research company Beijing Antaike Information said Monday.

ABN AMRO is raising its iron ore price estimates even as steel prices in the US and Europe have fallen, as customers deplete inventories. That has led steel producers like Mittal Steel and Arcelor to cut output.

Benchmark European export prices for hot-rolled coil have fallen almost 32 percent to US$405 a ton, from a record US$592.50 in January, according to Metal Bulletin. US import prices for the product have fallen to US$430 a ton, from US$630 a ton at the end last year, the London-based publication said.

Goldman Sachs JBWere and Investec over the past month cut their estimates for iron ore for 2006, expecting lower steelmaking output, and supplies of the raw material to rise as congestion at ports and rails eases.

Falling steel prices won't hurt steelmakers' ability to pay higher material costs, Macquarie Bank, Australia's biggest investment bank, said in a report Monday.

Rising iron ore prices over the past three years added US$35-US$40 a ton to the cost of making steel. Benchmark hot-rolled coil prices are still US$175 a ton higher than 2002 average steel prices, Macquarie's analysts said.

ABN AMRO says prices will fall only from April 1, 2007, after miners increase capacity, and prices will decline by 35 percent.

Global steel production rose 8.1 percent in the first five months of the year to 456.7 million metric tons, compared with last year, according to the International Iron & Steel Institute.

``The seaborne iron ore market is a global market, so it is important to look at global steel production figures rather than regional ones,'' ABN AMRO's analysts said.

China's biggest steelmakers, such as Baoshan Iron & Steel, are unlikely to cut production in the second half even with falling prices, analysts have said. Chinese steelmakers are visiting India next month to negotiate for longer-term supplies of iron ore.

Supplies may be harder to find, said ABN AMRO. India is the second-largest supplier of iron ore to China last year. Indian iron ore exports accounted for about 12 percent of global trade, according to Citigroup, ranking behind Australia and Brazil.

Its exports had grown 24 percent to 78 million tons for the year ended March 31, 2005, according to the Indian mineral industry federation.


Clifford said India may raise iron ore exports by 3 percent this year, though that may be an optimistic forecast. BLOOMBERG

http://www.thestandard.com.hk/stdn/std/Markets/GG19Ag06.html