By Tan Hwee Ann, Bloomberg
Melbourne: Iron ore contract prices may rise 7% next year, rather than decline as expected, due to stronger-than-expected Chinese demand, said Citigroup Inc.
Chinese steelmakers, the world’s largest producers, may import 4.3% more of the steelmaking ingredient in 2007, and 7.4% in 2008, said Alan Heap, an analyst at the world’s largest financial firm, in a 6 March report. Heap earlier predicted ore prices could fall 20% next year.
Five straight years of iron ore price increases to a record this year have led to all-time high profits at miners BHP Billiton Ltd, Rio Tinto Group and Cia. Vale do Rio Doce, who accounts for three-quarters of the trade. Analysts are expecting prices may fall 10% to 15% next year as miners increase supply, JPMorgan Chase & Co. said 5 March.
“The drivers behind the change are tighter market conditions last year, and in 2007-2008 driven by stronger demand in China,” said Heap. “The market is tightening further in the short term, as indicated by increases in spot prices.”
An export tax levied on Indian iron ore will also lead to higher cash prices, and “provide scope for further gains in contract prices next year,” Heap said.
The Indian government wants to levy a Rs300 tax on iron ore exports from 1 March. India is the third-largest iron ore exporting country, accounting for 14% of market share. Brazil, in which Vale has its mines, and Australia, where BHP and Rio have mines, both account for 36% of globally traded ore, Citigroup said.
JPMorgan, the third-biggest US bank, on 5 March said prices may defy analysts’ expectations of a fall of as much as 15% next year, due to surging demand from China and as record profits at Japanese steel mills enable them to pay more.
Iron ore prices are rising 9.5% from April this year.
Citigroup now expects ore prices to fall 10% in 2009, from a 15% decline forecasted earlier.