Asia is Key Market as Commodities Bounce Back

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Researched by Industrial Info Resources (Sugar Land, Texas)--Marius Kloppers, CEO of BHP Billiton (NYSE:BHP) (Melbourne, Australia), made a telling remark when being interviewed in Africa recently.

Mr. Kloppers is quoted as saying, "Any effects on commodity demand due to potential weakness in developed countries are likely to be offset over time by continuing growth as China and India urbanise and industrialise."

Translated, this can be interpreted as, "It doesn't matter to us if the U.S. and Europe never fully recover from the effects of the global financial crisis, because China and India will buy all the steelmaking commodities we can produce for the foreseeable future."

Brazilian miner Vale SA (NYSE:VALE) (Rio de Janeiro) seems to concur with this sentiment. A spokesperson for the company recently stated that the company faced a "tight situation, as even running our iron ore mines and pellet plants at full capacity, we will still struggle to satisfy demand."

Perhaps the companies are making such comments in an attempt to raise the agreed price for iron ore in benchmark price negotiations later this year. Chinese steel mill negotiators are certainly taking a polar-opposite position regarding prices, but unfortunately for them, the acid test of supply and demand in the form of the spot market is not backing them up.

The spot market price for iron ore is about double the benchmark prices agreed to last year. It is a matter of record now that the Chinese opted to take their chances with the spot price, rather than agree to a benchmark price they felt was not discounted heavily enough in their favour.

Another factor to consider is that Vale is putting its money where its mouth is. Vale currently has a capex budget of $12.9 billion, of which $8.6 billion is allocated to new project development.

Of course, no discussion of the ship-borne iron ore market is complete without taking into account Rio Tinto plc (NYSE:RTP) (London, England). The position of the company can be summed up fairly quickly: Rio has just announced that full-year profit was up 33% because of record iron ore sales and a recovery in commodity prices.

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy related markets. For more than 26 years, Industrial Info has provided plant and project spending opportunity databases, market forecasts, high resolution maps, and daily industry news.