china and iron ore, page-28

Pages 72/53 AFR incorporate an interesting article re upcoming price negotiations: particularly re iron ore supply growth vis a vis steel production growth:

"...Chinese steel production growth began slowing markedly in November 2007, just one month after the negotiations that resulted in a record increase in iron ore prices began.

The trend continued in December, as smaller steel makers began to feel the pinch of higher raw material prices even as steel prices were at a record high...

...But what has rally shocked the market is that the big guys have decided they simply do not want to produce as much steel in view of collapsing profit margins. Yet iron ore supply has expanded globally and within China. Imports have swollen, up 20 per cent this year already on an annualised basis against production that will grow by just 8 per cent.

But unlike before, there is no money to promote speculative buying of this iron ore at ports. As a result stockpiles nearly doubled from about 40 million tonnes at the start of the year to closer to 80 million tonnes in October.

China had finally succeeded in its efforts to curb the spot market, with a little help from the global financial crisis..."

If production keeps pulling back, and supply remains in excess, the question then becomes how imperative to Rio in the ST, the UMC Railway product is.

I'm not denying the LT value of the product: the question is one of short to medium term value. Or does it go in the bin with all the other juniors waiting for an upturn in the commodity cycle: albeit at the top of the pile?

BUSH