Ore prices may stay bullish till 2013

Steelmakers may keep paying record iron ore prices until 2013 because Cia Vale do Rio Doce (CVRD) and rival mining companies cannot meet surging demand from China, Credit Suisse group says.

Prices of the key steelmaking ingredient might rise 10 per cent next year and 3.2 per cent in 2009, analysts Roger Downey and Ivan Fadel said in an April 13 report. They might stay at a record until a forecast 7 per cent fall in 2013, it said.

China overtook Japan as the largest buyer of iron ore in 2003, as its economic expansion fuels the making of cars, buildings and appliances. Prices have risen for the past five years, helping Brazil's CVRD, Rio Tinto group and BHP Billiton to post record profits and spend billions on expansion.

"All the announced projects by majors will be insufficient and we expect further expansions by majors and by new entrants,'' said Downey and Fadel. "There will be continued growth in iron ore demand post-2010.''

New capacity expansion will be more costly, and drive up long-term iron ore prices to $40 a tonne, the report said. Iron ore prices from CVRD, the world's largest exporter of the ingredient, rose 9.5 per cent to $44.47 a tonne this year.

Most analysts had been predicting iron ore prices would either fall or stay unchanged in 2008, expecting miners to catch up with demand. That's changed in the past two months amid signs that China's demand may be greater than expected.

China would require an additional 260 million tonne to 270 million tonne of iron ore to feed steelmakers by 2010, the analysts said. Mining companies, including new projects from MMX Mineracao e Metalicos, would add 190 million tonne by then, they said. New projects might also be delayed, Credit Suisse said.

MMX, which is controlled by Brazilian billionaire Eike Batista, is investing $3.6 billion to build mines. BHP Billiton on March 23 said it would spend $2.2 billion expanding mines, and rival Rio in February approved a $860 million expansion of an iron ore port.

Australia and Brazil each accounted for about 36 per cent of global iron ore exports, followed by India as the third-largest exporter with a 14 per cent market share, Citigroup said.

The Credit Suisse analysts raised their iron ore prices estimates for the 12 months from April 1, 2008, to a 10 per cent gain, from a 5 per cent rise, as China increased imports more than estimated. Cyclones in Australia, where BHP and Rio have their mines, India's export tax on iron ore, and delays in projects would also strengthen the bargaining powers of miners, they said.

Goldman Sachs, JBWere, Deutsche Bank and UBS in the past month raised their iron ore prices for the next year.

Goldman expects iron ore to gain 5 per cent, instead of a 10 per cent fall. Deutsche Bank expects the commodity to rise 10 per cent, instead of a 5 per cent decline. UBS expects a 10 per cent gain, up from unchanged.

Chinese steel production could rise by 17 per cent in 2007, which would send the global iron ore market into a 1 per cent deficit, Credit Suisse said.

Baoshan Iron & Steel Co, China's largest steelmaker, said in January it expected steel-product output to rise 10 per cent to 23 million tonne in 2007, and wants to more than double that to at least 50 million tonne by 2012.

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Insatiable Dragon

Prices of the key steelmaking ingredient may rise 10 per cent next year and 3.2 per cent in 2009 and remain firm till 2013, according to Credit Suisse

Iron ore prices are set to rise following CVRD and rival mining companies failing to meet surging demand from China

China overtook Japan as the largest buyer of iron ore in 2003, as its economic expansion fuels the making of cars, buildings and appliances

China would require an additional 260 million tonne to 270 million tonne of iron ore to feed steelmakers by 2010