Major Iron Ore Price for 2008 and Miner-Client Convergence in Australia

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Researched by Industrial Info Resources (Sugar Land, Texas)--The iron-ore price test kites are flying high early as indications are that the 2008 price level could settle at a figure around $90 per ton. Some industry analysts are forecasting a jump of at least 25% in the price from its current level in the $70s. In the round of price negotiations for 2007, there was a pause in the exponential price rises over the previous two years for the commodity with 9.5% being the average rise. For related news item see December 26, 2006 – Early Agreement Between CVRD and Baosteel on 2007 Iron Ore 9.5% Rise.

Rio Tinto (NYSE:RTP ) (London, United Kingdom) sees the growth rate in world demand for iron ore in 2008 reaching new heights. Rio’s CEO Sam Walsh said that the market was extremely tight and that it would normally signal a price rise when negotiations with the steel mills begin next month. “The interesting thing is that when you look at steel mills and iron ore countries around the world, each of them are doing pretty well.” Walsh said in Perth, Australia. “We are seeing mills far more profitable than they were.” He added that huge demand was coming from China, India, the Middle East and Russia.

Also speaking at the AusIMM conference at Perth, Australia, in August, BHP Billiton Iron Ore (NYSE:BHP ) President Ian Ashby (Melbourne, Australia) said his company was expanding aggressively in response to Chinese demand efforts by Brazilian producers to ”steal” market share from Australian exporters. CVRD has increased its share of the global iron ore market from 10% to 20% since 2000. He said that BHP was confident of production in the company’s ore operations in Western Australia to 300 million tons per annum by 2015 from 108 million tons reached in the year ending in June 2007. Rio Tinto is targeting annual iron ore production of 220 million tons in Western Australia by 2009, up from 166 million tons in 2006. Rio is also studying production expansion in the future to 320 million tons per annum.

With China driving 90% of growth in the ore market, domestic iron and steel companies are looking for overseas iron ore resources. Zhu Jimin, Capital Iron and Steel Group (CISG) chairman, said companies including his own and the state’s Baosteel have plans to exploit mines in Africa, Australia and Brazil. This move outward to secure resources is mirrored by Rio’s intention of seeking joint ventures with Chinese companies.

Zhu Jimin said that 45% to 50% of China’s iron ore is mined domestically. CISG is supplied with 30% of its ore requirements from domestic mines, and 70% is imported. He said that domestic iron ore resources were there but that growth in global steel production had left local mining capabilities behind, making it difficult for them to meet demand. He said that the ore-shortage gap should be relieved in two to three years. Statistics from China’s General Administration for Customs showed that total ore import for June was 26.9 million tons, down 6.37% from June 2006 and down 2.61% from May 2007.

At the recent September Asia-Pacific Economic Cooperation summit in Australia, Chinese President Hu Jintao toured mining operations in West Australia while Victor Rashnikov, a Putin confidante, requested the federal government’s approval on raising Magnitogorsk Iron and Steel Works stake in Fortescue Metals (OTC:AU:FMG ) (Perth, Australia). Fortescue will become the country’s third largest iron ore producer when it moves into full production after starting shipments in 2008. In a feverish bout of initiatives and deal-making, including uranium and LNG, the Chinese president visited Rio’s state-of-the-art HIsmelt technology-based pig-iron plant in Kwinana, which Rio claims cuts costs and emissions dramatically. Rio already has two HIsmelt licenses with Chinese steel mills.

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