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Source: www.smh.com.au

UBS tips 25% hike in iron ore price
July 10, 2007 - 1:49PM

Australian iron ore miners can expect to cash in over the next couple of years as there is no indication that demand from China is slowing.

According to the latest research from investment bank UBS, iron ore prices are expected to rise by at least 25 per cent next year as demand outpaces global supply.

"Bulk commodity fundamentals appear to be tightening once again, as demand growth outpaces global supply and availability issues emerge in an environment of tight shipping markets," UBS said.

"We have increased our forecast for the 2008 contract, and are now looking for a 25 per cent increase rather than the 10 per cent increase previously forecast."

The revised forecast follows upgrades by Citigroup and Goldman Sachs JBWere, which have forecast a 20 per cent and nine per cent increase next year, respectively.

UBS listed a dip in Chinese domestic iron ore production, tight supply and an increase in steel production as the key drivers for its upgrade.

"Steel production has grown faster than previously expected and was up 3.8 per cent on 2006 for the five months to May," UBS said.

An further hike in the iron ore price would mark the sixth consecutive increase for the bulk commodity.

A 25 per cent increase would boost the price of premium Pilbara lump ore to about $US101 per tonne.

BHP Billiton Ltd and Rio Tinto Ltd, the two largest exporters of iron ore in the Pilbara region of WA, have been progressively ramping up and expanding operations to meet surging demand from China.