Good read, very balanced view of IO today and beyond.
THE iron ore sector -- once the darling of the resources boom -- is starting to feel the pinch oftougher global market conditions.
But analysts predict its long-term outlook is still sound.
Citi commodities analyst Alex Tanks said iron ore was the best market the company covered as it had great returns.
But he warned its attractive qualities, including high barriers to entry, low price volatility and consolidation of ownership were now changing.
Speaking at an investor briefing on iron ore in Sydney yesterday, Mr Tanks also said the expected ramp-up in China after the Olympics had taken longer than expected.
"Domestic production and consumption in China has also slowed, in a market with tighter credit conditions," he said.
"But beyond 2009, we continue to forecast strong growth.
"Despite the near term negatives, don't forget the super-cycle: China's urbanisation is not complete and the long-term China story is still intact."
Mr Tanks said India's iron ore situation would also help the Australian market, with most steel projects in the country dependent on gaining mining licences.
"Many steel projects in India develop at a snail's pace," Mr Tanks said.
"While Indian iron ore exports have doubled since 2000, there has been talk about whether iron ore should be domestic and there are restrictions on its exports, which helps the Australian market."
Citi also predicts Australian iron ore producers will secure a 10 per cent increase in iron ore for the 2009 Asian contracts, but have tipped a 20 per cent decrease in 2010 and 10 per cent fall in 2011.
"We are more negative on the price outlook beyond the short term," Mr Tanks added.
Junior iron ore miner Territory Resources chairman Andrew Simpson said for those companies already established in the sector, the long-term results still would be robust.
"But the outlook for iron ore in the short term is there are pressures in the spot market," he said.
The spot price has declined from about $US190 per tonne in August, to about $US120 today.
UBS has predicted a grim outlook for the commodity, which has transformed the Pilbara region in Western Australia.
In a note to clients yesterday, UBS, led by analyst Glyn Lawcock, argued there was downside risk to iron ore prices, given the backdrop of declining spot iron ore and steel prices.
With Chinese steelmakers halting imports from Brazil, the other countries poised to benefit are, primarily, Australia and India, but UBS agreed with Mr Tanks that India's export issues meant Australia was in a better position to reap the benefits.
Early last month, Brazilian miner Vale attempted to raise the price of contracted iron ore to Chinese and other Asian steelmakers by 12 to 13 per cent.
This demand was rejected by the Chinese Iron and Steel Association, which sent notices to its members asking them to boycott iron imports from Vale.
"The Chinese boycott and the current iron ore spot price environment appears to be a sign of weakening iron ore demand in our view," UBS said.
GBG Price at posting:
31.6¢ Sentiment: Buy Disclosure: Held
