Iron ore prices to stay buoyant

Iron ore prices may defy analysts' expectations for a fall of as much as 15 per cent in 2008 amid surging demand from China and higher Japanese steel mill profits, said JPMorgan Chase, the third-biggest US bank.

A rise of five per cent in contract prices for the year starting April 1, 2008, would boost Rio Tinto Group's profit by $1 billion and BHP Billiton by $650 million, said JPMorgan analysts led by David George in a note yesterday. The firm is maintaining its forecast for a 10 per cent cut.

Record Chinese iron ore imports in January, a new export tax in India and record Japanese steelmaker profits suggested expectations of a 10-15 per cent decline may prove to be too pessimistic, the analysts said. BHP, Rio and Cia. Vale do Rio Doce account for three-quarters of global iron ore trade.

"If the positive iron ore market holds through 2007, the earnings forecast for Rio and BHP could be subject to upgrade,'' the analysts said. 
 

ON A ROLL
	Fines	Lump ore	Pellets
1994	24.40	30.40	43.60
1995	26.90	33.30	49.10
1996	28.50	35.20	52.40
1997	28.80	35.20	52.10
1998	29.60	36.20	53.50
1999	26.90	32.20	46.40
2000	27.60	33.90	49.20
2001	28.90	35.10	50.10
2002	28.60	34.30	47.30
2003	31.40	37.30	52.00
2004	37.30	44.40	61.80
2005	64.00	79.00	115.50
2006	76.20	94.00	112.00
2007*	83.40	NA	NA
*Based upon news of 2006 Dec 22 deal between Baosteel and CVRD for one year starting April 1, 2007. Source : Econstats

Prices for iron ore will rise 9.5 per cent from April, 2007, to a record, the fifth straight year of gains, on soaring demand from Chinese steelmakers.

Japanese steel companies are expected to post a third straight year of record profits, allowing them to pay more for raw materials, the report said. Chinese iron ore imports rose 32 per cent in January to 35.9 million tonne from a year ago, China's customs office said on Feb. 12.

An Indian tax of Rs 300 ($7) a tonne levied on iron ore exports from March 1 won't stop Chinese steelmakers from continuing to buy ore from the country, due to strong demand, JPMorgan said.

"The Chinese will continue to buy and accept higher spot prices from the passed-on tax,'' they said. "This can only support stronger April 1 2008 contract prices for imported ore from Australia and Brazil.''

Rio and BHP's iron ore mines are in Australia, and Vale, the largest exporter of the raw materials, has its mine in Brazil.