Assumption of iron ore prices trends in 2012

Assumption of iron ore prices trends in 2012

Platts, a global iron ore reference-price provider, said Vale and Rio are likely to raise prices by 7 per cent and 8 per cent, respectively. The analysis from Platts indicates that global steelmakers will be facing greater pressure from costs of raw materials.
The increases will push iron-ore term supply contract prices back to peak levels seen in the third quarter of this year, when most Chinese steelmakers swung into net losses due to high raw material prices.
A second iron ore price provider, The Steel Index, said spot market iron ore prices will continue to firm or rise further in 2011 as steelmakers have re-entered the market after 2009's crisis.
The new norm will be average spot prices nearer $US150 a tonne than the $US100 a tonne we saw a year ago," said Steve Randall, managing director of The Steel Index, a London-based pricing service, in an interview.
Spot iron ore prices hit $US166.50 per dry tonne delivered at China's Tianjin port on November 26, up from $US162.80 a week earlier, according to The Steel Index data.
There's little sign of a significant price fall in the first half of 2011, although spot markets will continue volatile, Mr Randall said.
"Market supplies will continue tight, as new production capacity won't come on stream until the second half of 2011," Mr Randall said. "And India is still banning exports of the steelmaking ingredient from one key state to ensure local supplies."
The Platts index, adopted by most Chinese steelmakers, indicates that Brazil's Vale may price Carajas fines with grade of 66 per cent at $US172.02 per dry tonne the first quarter, including freight to China's Qingdao harbour, up from $US160.76/tonne in the current quarter.
Tubarao fines with grade of 65 per cent could be sold at $US166.31/tonne on a cost-and-freight basis to Qingdao, up 7 per cent from the current $US154.86/tonne, Platts said.
For customers that buy on a free-on-board Brazil basis, ocean freight, unilaterally fixed by Vale at $US21 a wet metric tonne, is deducted from the C&F Qingdao price. Using this method, Carajas and Tubarao fines would be priced at $US149.07 and $US143.85/tonne FOB Brazil, Platts said.
Anglo-Australian miner Rio Tinto could raise the price of its flagship product -- Pilbara-blend fines with grade of 62 per cent -- by 8 per cent to $US136.94/dry tonne in the first quarter, free-on-board Australia, compared with $US127.18/tonne in the current quarter. The price of Yandicoogina fines with 58 per cent iron content could rise to $US128.10/tonne from $US118.98/tonne, Platts said.
Both Vale and Rio's pricing formulas for first-quarter contracts are based on average index from September-November, it said.
"The price hikes are predictable according to the spot prices of recent months," said Xu Guangjian, an analyst with research house Umetals.
"Overall losses for China's steelmakers are possible, though currently market participants are mainly confident of the first-quarter steel market," he said.
Rio Tinto and Vale moved to sell iron ore based on average quarterly prices in April, shifting from a decade-old annual benchmark pricing system, while BHP Billiton has been actively pushing for a more flexible pricing mechanism based on monthly or even spot prices.

 

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