big gain tipped for iron ore benchmark price

Big gain tipped for iron ore benchmark price

PETER KLINGER, The West Australian
March 3, 2010, 6:15 am

The prospects for WA's iron ore industry have turned from positive to outright bullish - all but erasing memories of the industry's near- collapse just over 12 months ago, after analysts tipped this year's benchmark price to soar by 70 per cent.

Nomura's market-topping forecast came as Morgan Stanley analysts argued a benchmark price rise this year of 60 per cent was achievable.

The forecasts are in stark contrast to the gloomy mood a year ago when the Pilbara's miners, led by Rio Tinto and BHP Billiton, managed to contain year-on-year price cuts for deliveries to non-Chinese steel mills to about 30 per cent. At the time even the more bullish analysts were only expecting a break-even or 10 per cent benchmark price rise this year.

But strong demand from Chinese mills, in particular, as post-global financial crisis stockpiling took place has sent iron ore spot prices soaring over the past six months.

The key spot price for deliveries to the Chinese port of Tianjin has risen from just below $US100 a tonne in December to more than $US133/t.

It was trading at less than $US60/t a year ago, about the same as the 2009 benchmark price.

Nomura's forecast contrasts to the 71.5 per cent year-on-year benchmark price rise achieved by the iron ore miners in 2005 and a record 85 per cent increase settled in 2008, a four-year period regarded as the height of the China-fuelled resources boom.

Nomura justified its 70 per cent tip - up from a previous 40 per cent to 50 per cent forecast - by pointing to the concerted effort BHP in particular was making in scrapping the long-standing benchmark set-up in favour of striking a contract with steel mill customers that was more aligned to the iron ore spot price. It said it expected the contract prices of iron ore and coking coal, another steel-making ingredient, to double over the next two years.

BHP has told analysts it would use the spot price as the starting point for this year's contract price negotiations.

BHP's aggressive stance is being supported by Rio and Brazil's iron ore giant Vale, which also want a more transparent pricing system to avoid missing out on a soaring spot price.

http://au.news.yahoo.com/thewest/business/a/-/wa/6879583/big-gain-tipped-for-iron-ore-benchmark-price/