Iron ore price may increase 25%: Sinosteel

Sinosteel Corp, China's second-biggest iron ore trading company, expects the contract price for the steelmaking ingredient to gain 25 per cent next year, driven by increased demand, a company executive said.

"China's demand is unstoppable," Hongsen Wang, managing director at the company's Indian unit, said today in an interview from New Delhi. Wang had forecast a 5 per cent price gain in May. "Supply continues to lag demand," said Wang.

Mining companies including BHP Billiton, the world's largest, and their customers begin annual contract talks this month to settle the price of ore shipments from April. Wang's forecast is less than the 30 per cent gain in the price estimated in a Bloomberg survey of eight analysts last month.

Rising demand from China, the world's largest steel user, has pushed iron ore prices to a record for five years. India is the second-biggest supplier of the ore to China, providing a quarter of total imports.

"Demand is so strong that we have seen prices rise sharply in the spot market,'' said S B Chauhan, an adviser to the Federation of Indian Mineral Industries, from New Delhi. "Buyers are willing to pay a premium to lock in supplies.''

Spot prices, which are determined on a single-cargo basis, have reached $185 a tonnes, according to Credit Suisse Group on September 28. That compares with the 2007 benchmark Australian price for long-term contracts of $51.47 a tonnes.

Sinosteel's purchases of iron ore from India may reach 11 million metric tonnes this calendar year compared with 10 million tonnes expected earlier, said Wang today in the interview.

Chinese steelmakers are raising production 15 per cent to meet higher demand for cars, railroads and buildings.

Last year, Baosteel Group Corp, the country's biggest steelmaker, set the benchmark iron ore price for the first time by agreeing to a 9.5 per cent gain, the smallest rise in four years. The Asian nation overtook Japan as the largest buyer of iron ore in 2003.

The price for benchmark ore shipments from Australia will rise to a record $66.40 a tonnes next year, according to the Bloomberg analysts' survey last month. Sales may climb 11 per cent this year while supplies go up 8 per cent, Merrill Lynch & Co has estimated.