Macquarie sees 10% rise in iron ore prices

Iron ore contract prices may rise 10 per cent next year on expectation of rising demand from China, according to Macquarie Bank, the largest investment bank in Australia, the biggest iron ore exporter.

The bank had previously forecast a 15 per cent drop in the price of the steel-making material in 2008, Macquarie said in a note to clients dated today. Citigroup also raised its forecast this month to a 7 per cent increase, reversing an earlier estimate of a 20 per cent fall.

Iron ore has risen for five straight years to a record this year on increased demand from China, which supplies one-third of the world's steel. The increases have driven profits to all-time highs at BHP Billiton, Rio Tinto group and Cia Vale do Rio Doce (CVRD), the mining companies that account for three-quarters of global trade in iron ore.

"The pace of Chinese industrial production is expected to increase as infrastructure spend accelerates, in part due to surplus liquidity,'' the Macquarie's note said.

Chinese steelmakers may import 4.3 per cent more of the steel-making ingredient in 2007 and 7.4 per cent in 2008, Citigroup's analyst Alan Heap said in a March 6 report.

China's steel output rose 23 per cent to 74.3 million tonne in the first two months this year from a year ago, the National Bureau of Statistics said today through its agency.