re:iron ore up 18% this year/wens comments China's Wen Says...

re:iron ore up 18% this year/wens comments China's Wen Says Market Should Set Iron Ore Prices (Update4)

April 3 (Bloomberg) -- Benchmark annual contracts for iron ore should be set between miners and consumers, China's Premier Wen Jiabao said today, reversing earlier comments by his government that it will intervene in price talks.

Shares of BHP Billiton, the world's largest miner, rose 3.2 percent to close at a record A$28.90. Shares of Rio Tinto Group, the world's second-largest iron ore exporter, rose 1.1 percent to a record A$79.69.

``It's nice to see the Chinese Premier's response that it is a free market and that prices will be decided by the market,'' said Tim Barker at BT Financial Group in Sydney, which manages and advises on the equivalent of $54 billion. ``It clears the air. It now comes down to the negotiations and the market seems to be expecting a 10-to-15 percent increase.''

BHP Billiton, Rio Tinto Group and Cia. Vale Do Rio Doce, the world's largest iron ore miners, are locked in talks with steelmakers to set prices for 2006. Chinese steelmakers have said they can't afford another rise after last year's record 71.5 percent rise. Brazil's Vale is seeking a 24.6 percent gain.

The Chinese government on March 15 said it opposed any price increases in the steelmaking raw ingredient for 2006. The government plans to monitor the talks though isn't going to be part of them, Xinhua News Agency said March 22, citing an unidentified person close to the talks.

`Work Together'

``China and Australia should work together to put together a long-term relationship of supply and demand, and a pricing mechanism that is up to international practices,'' Wen said at a press conference in Canberra with Australian Prime Minister John Howard today. ``As for specific iron ore prices, this is a matter to be decided by the market.''

China is the world's largest consumer of iron ore, and Australia the largest exporter. Baosteel Group Corp., China's biggest steelmaker, started a fourth round of negotiations with iron ore producers last week, Xinhua News Agency said March 23.

To be sure, Wen was making his comments in Australia and ``a guest has to say something to please the host,'' said Geoffrey Cheng, Hong Kong-based analyst with Daiwa Institute of Research (HK) Ltd. ``The Chinese government and its steel association are playing a role in the iron ore talks.''

China's iron ore imports surged 32 percent last year to 275 million tons, and the nation now accounts for 43 percent of global iron ore trade after tripling imports in the past five years. Global supply of the ore will lag demand by about 3.5 million tons this year, widening from 3 million tons in 2005, Deutsche Bank said in February.

ABN Amro

Wen's ``comments certainly reinforced that the central government wants the market forces to prevail,'' said Ian Warden, an iron ore analyst at AME Mineral Economics in Sydney. ``The market is fairly tight.''

Steelmakers in China, the largest consumer of iron ore in the world, may accept as much as a 10 percent increase in annual contract prices this year for the raw material, two Chinese steel industry officials said March 28.

Melbourne-based BHP Billiton shares rose 90 cents, or 3.2 percent, to A$28.90 at the 4:15 p.m. close in Sydney. London- based Rio rose 84 cents to A$79.69. Shares of Portman Ltd., Australia's third-largest iron-ore miner, rose 3.5 percent.

Steel companies can afford to pay up to 150 percent more for iron ore before they become unprofitable, ABN Amro Holding NV said March 16. Merrill Lynch & Co., the world's biggest securities firm by market value, has predicted that ore prices will increase by 18 percent this year.

Chinese steelmakers want a bigger say in setting prices after tripling imports in the last five years and overtaking Japan as the single-largest buyer in 2003. Global benchmark prices have traditionally been set by Japanese or European steelmakers with the iron ore producers.


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