[January 24, 2006]
= BHP, Rio Tinto Could Get 20% Boost In Iron Ore Prices
(Comtex Business Via Thomson Dialog NewsEdge)By Matt Chambers
Of DOW JONES NEWSWIRES
MELBOURNE, Jan 23, 2006 (Dow Jones Commodities News via Comtex) --Iron ore giants Rio Tinto PLC (RTP) and BHP Billiton (BHP) could get a 20% boost in iron ore prices, as contract talks with Asian steelmakers look to be swinging in miners' favor, Australian analysts predict.
ANZ Investment Bank Tuesday raised its forecast gain in prices to 20% for next Japanese fiscal year, from 15% previously, citing increased demand from China, and expected slowing of iron ore exports from India.
The bank joins JPMorgan and Citigroup in forecasting a 20% gain in contract prices for the fiscal year starting April 1. Merrill Lynch said in November that prices could gain as much as 30% on last year, though kept its forecast for a 10% rise.
BHP, Rio Tinto and Brazil's CVRD (RIO) account for more than 70% of seaborne iron ore trade and are currently in annual talks with Japanese steel makers over next year's prices.
And while there have been no predictions of gains anywhere near the unprecedented 71.5% price hike for this year, most analysts previously forecasting a fall have reversed their forecasts, amid signs of growing demand.
Numis Securities said Monday that it expects prices to gain 10%, after reports Chinese steel contracts had been signed.
Numis cited media reports saying two Chinese mills had signed short-term contracts with two of the three big producers for a 10% gain.
"Short-term contracts might turn into the key benchmark long-term contracts," Numis analyst John Meyer said, adding there was a chance of reading too much in to the reports, which cite Interfax.
A BHP spokeswoman wouldn't comment on the report, repeating the company's line it will be silent on the talks until it has signed contracts. A Rio Tinto spokesman also declined to comment
"Talk out of Asia on the state of the negotiations, is all really speculation," said ANZ credit analyst John Manning. "We're not going to get any solid information until the producers announce their prices."
Manning said growing iron ore demand was illustrated by spot prices for the raw material exceeding the contract price throughout 2005 despite the contract's record gains.
Chinese demand for Australian and Brazilian iron ore is also expected to increase in coming years as India's iron ore production is used to satisfy booming domestic steel demand.
"India's rate of steel production is expected by 2011 to be two-and-a-half to three times higher," Manning said. "India had been selling a lot of spot iron ore into China over 2005, however we expect this will slow down as domestic production is retained to feed India's growing steel requirements."
Australian analysts at ABN Amro, Goldman Sachs JBWere and National Australia Bank are all forecasting a 10% gain, though most have flagged upside risk to this.
Credit Suisse is predicting a 15% gain.