fundementals thru the roof, page-10

DJ Global Iron Ore Prices Will Continue To Rise - Vale Exec08/04/2008 04:07PM AEST
SINGAPORE (Dow Jones)--Global prices of metals and minerals, particularly those of iron ore, will continue to rise despite the current credit crisis and a potential growth slowdown, a senior industry official said Tuesday.

Despite equity prices in general reacting negatively to the credit crisis, mining stocks have been exceptionally resilient.

"The stock market is telling us to expect high (metal) prices," said Roberto Castello Branco, investor relations director of Brazilian mining giant Companhia Vale do Rio Doce, or Vale.

Speaking at Asia Mining Congress 2008, he said a key indicator was the steady rise in spot iron ore prices even after Vale agreed with Japanese and Chinese steel producers on a 65%-71% increase in 2008 term contract prices.

Unlike in previous years, when the first major price agreement became the industry benchmark, BHP Billiton Ltd. (BHP) and Rio Tinto PLC (RTP) are still holding out for higher prices, particularly from buyers in Asia, who enjoygeographic proximity to their iron ore mines; the companies want to charge these buyers a freight premium.

The London Metal Exchange's key LMEX base metals index also doesn't anticipate a global recession, he noted.

Branco said he expects global economic growth to average 4% a year in the next five years, still well above historical averages.

Even developed economies may grow 1% this year as opposed to around 2% last year, while developing economies could average a growth of 7%.

"Decoupling (of growth between the U.S and emerging economies) has been happening since the emerging market crisis in the 90s and we expect that to continue this year," he said.

Branco noted the growth differential between developed and emerging economies would be six percentage points this year before falling to about five percentage points a year from 2009.

Vale, which has plans to invest $59 billion in new production capacity between 2008 and 2012, expects overall output to grow 11% annually, slightly below the 11.6% annual growth achieved in the last five years, he said.

But this is unlikely to put pressure on the prices of any of the commodities the company produces, as emerging markets, particularly China, will continue to drive demand.

"More recently, there is also a trend toward a power shortage" in many producing regions, which will further add to cost and price pressures, he said.


- By Denny Kurien; Dow Jones Newswires; 65-6415-4080; [email protected]