Iron Ore spot prices up!
Know wonder the chinese want to take control of Iron Ore projects, they're tired of price hikes!
Rio Tinto, BHP expected to benefit from iron ore price rise
By Stephen Bell
Of DOW JONES NEWSWIRES
PERTH (MarketWatch) -- Anglo-Australian miners Rio Tinto Ltd. (RTP) and BHP Billiton Ltd. (BHP) are expected to enjoy a major iron ore profit windfall in the next 12 months after contract prices for the steel-making ingredient rose 19% in Europe, analysts said Tuesday.
The deal, reached Monday between Brazil's Cia. Vale do Rio Doce (RIO), or CVRD, and German steel maker Thyssen Krupp Stahl AG, is likely to be duplicated in the Asian market, where Rio and BHP are the biggest suppliers, analysts told Dow Jones Newswires.
Though dwarfed by last year's 71.5% price hike, the latest increase is at the upper end of market expectations, they said. It should provide a multibillion dollar export boost to Australia as demand for iron ore rises in Asia because of China's rampant industrial growth.
Rob Clifford, an analyst at ABN AMRO, expects the European price settlement to flow through to BHP and Rio Tinto in the "next couple of weeks."
"CVRD is the world's largest producer and has settled first," Clifford told Dow Jones Newswires.
"They have contracts in Asia and obviously would like to roll that same price into Asia. So I'd assume that BHP and Rio Tinto will get a similar number," he said.
ABN had been predicting a 10% price increase for the Japanese fiscal year that started April 1, 2006. Market forecasts ranged from 10% to 20% Clifford said.
"It is a significant settlement between a major seller and its customer, and we are still in discussions with our customers," a Rio Tinto spokeswoman told Dow Jones Newswires. A BHP spokeswoman declined to comment.
In early afternoon trade, BHP and Rio Tinto shares were both down around 2.5% after metal prices fell overnight.
Normally when iron ore prices are settled first in Europe, the same price changes eventually trickle through to the Asian market, says Rob Brierley, an institutional adviser for Hartleys.
"So it is certainly a positive for Rio and BHP," he said.
However, he believes that the price rise is not "set in concrete" as Arcelor, Europe's biggest steel maker, is yet to agree to the increase.
This is also the first year that China - outspoken in its efforts to limit the iron ore price increase - has taken over from Japan as the lead negotiator in Asia.
"It is not a fait accompli that the 19% increase will be mirrored in Asian markets, but it is quite a definitive line in the sand," Brierley said.
ABN's Clifford doesn't expect the deal to result in major upgrades to analysts' profit forecasts for BHP and Rio. "It would be in the order of a percent or two (change) for the majors, in my view," he said.
Driven by high prices for iron ore and other commodities, BHP's profit is expected to jump by nearly 50% to around US$9.5 billion in the fiscal year ending June 30, 2006, while Rio Tinto's earnings may rise 30% to around US$6.5 billion in calendar 2006, analysts believe.
Earlier this year the Australian Bureau of Resource Economics forecast that the value of Australian iron ore exports will rise 26% to A$18 billion in the fiscal year ending June 30, 2007.