analysts tip double digit rise in iron prices

From todays west australian

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.