Analysts tip double-digit rise in from ore prices REBECCA KEENAN Chinese steel makers are bracing for more expensive times after heavyweight investment bank UBS added its weight to industry forecasts by substantially raising its iron ore price targets. UBS is now tipping the annual negotiations between the miners and the Asian steel mills will result in a 25 per cent higher price from April next year. It had been forecasting an increase of around 10 per cent, similar to the 9.5 per cent achieved last year. But a jump in Chinese steel production, already up 9 per cent in the first five months of the year, prompted UBS to take another look at its pricing. "Steel production has grown faster than previously expected," UBS said in a research note, indicating higher demand for the metal. "This trend may ameliorate somewhat across the balance of the year and into 2008, however we do not expect an abrupt slowdown." China also mines its own iron ore but this supply is hampered by low grades and a declining supply, increasing the country's dependence on imported metal. A 25 per cent increase would not be met gladly by the steel mills in Asia which are still licking their wounds from a 71.5 per cent spike in 2005. Macquarie Bank is expecting 2008 prices to rise 17.5 per cent, Citigroup has forecast 20 per cent and Credit Suisse 25 per cent. Higher iron ore prices would have a big impact on the already impressive profits of Rio Tinto and BHP Billiton. UBS increased its profit forecasts for BHP Billiton by 8 per cent for 2007- 08 to $15.08 billion and up 10.7 per cent the following year to $16.5 billion. Rio Tinto derives a greater portion of its earnings from iron ore, currently just over one third, and UBS raised its profit forecasts by 13.2 per cent for 2008 to $10.8 billion and up by 22.2 per cent for 2009, also to $10.8 billion. Rio's shares firmed only 9¢ to $103.49 after a strong run recently. BHP Billiton shares pulled back from their record high of $38.83 to drop 37¢ after setting a new intra-day record of $38.94. The improved outlook helped some juniors higher yesterday with Midwest Corporation piling on 35¢ to $3.59, Gindalbie Metals finding 9.5¢ to $1.47 and Atlas Iron moving up 11¢ to $1.88. Market favourite Fortescue Metals Group jumped $1.72 to $39.22. Reinforced: Steel mills could face price rises of up to 25 per cent from April.
AGO Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held