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plenty upside be patient Iron Ore Prices May Rise as Much as 10%, Credit Suisse Says

By Tan Hwee Ann

Oct. 27 (Bloomberg) -- Iron ore prices, which have risen four consecutive years to a record, may climb 10 percent next year on stronger than expected demand for the raw material from Chinese steelmakers, Credit Suisse Group said.

Credit Suisse, which predicted a 5 percent rise a year ago, estimates ``there is a high risk to the upside,'' said analysts Roger Downey and Ivan Fadel after hearing a presentation by the China Iron and Steel Association.

Soaring demand in China and limited mine expansion drove prices 19 percent higher this year. The China Iron and Steel Association forecasts steel output to rise 13 percent a year between 2006 and 2010, Downey and Fadel said in a report dated Oct. 26.

``Our iron ore supply-demand model already shows a very tight picture for the next four to five years, using our assumption of Chinese steel production growth of 8.5 percent,'' said Downey. ``If we were to use China Iron and Steel Association estimates, the market should be even tighter.''

Talks to set prices for next year between Chinese steelmakers, led Baosteel Group Corp. and the world's largest iron ore producers Cia. Vale do Rio Doce, BHP Billiton Ltd. and Rio Tinto Group start next month.

Downey and Fadel attended the Sixth China International Steel & Raw Materials Conference in the eastern city of Qingdao, and published their report yesterday.

The China Metallurgical and Mining Association also said at the conference that Chinese iron ore producers are mining ore of 10 percent iron content, the analysts said.

That suggests Chinese iron ore production, once it is concentrated to similar levels of iron content as those of imports, is only maintaining its market share even as output rises 35 percent, they said.


Thanks to Bloomberg.com