chinas iron ore hunger

Could the Cape be in their sites???

A 100% increase for pellet prices is definately on the cards now. New shareprice target for Grange should be around at $1.20 on these new IO prices.

Brazil's miner Vale attempts to hose down report on iron ore price spike
UPDATE: John Kolodziejski
From: Dow Jones Newswires March 24, 2010 6:24AM
ANNUAL iron-ore price negotiations have taken an interesting turn after a report that Brazilian miner Vale was looking for a 114.4 per cent increase.

Not only was the percentage increase well above market expectations of between 60 per cent and 90 per cent, but, according to the report in Brazil's Valor newspaper, Vale had launched a new model of quarterly contracts.

Vale later released a statement denying it had issued any new information about prices to the market, but reiterated the tri-monthly contract model wasn't new but part of its flexible negotiating strategy.

Vale's reported price increase would bring top-quality sinter feed ore to $US122.20 a tonne for the period April through June, Valor said, well up on Vale's $US57 iron-ore reference price last year.

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Gilberto Cardoso, a mining analyst at Banif Investment Banking, said the report seemed to confirm sentiment that this year's price increases would be at the top end of forecasts.

There are risks, however, if the price is pitched too high, he said.

"I think China's supply chain might be able to absorb a high rise, but there are worries about markets which are showing no growth like Europe, the US and even Latin America," said Mr Cardoso.

"Some mills and manufacturers just can't pass on prices like that to their customers," he added.

However, Vale's high prices may be just an initial bargaining ploy.

"These prices aren't likely to be the final ones, as discounts should be given. Differentiated contracts may be signed at an average price a bit below this rise of over 100 per cent," Sao Paulo's Link Investimentos brokerage said in an analyst report.

Vale's tri-monthly model, known as IODEX, is a new wrinkle in iron-ore contracts.

Until now, iron ore has been mainly contracted either at an annual benchmark price or through spot market sales.

"If confirmed, tri-monthly contracts would represent a big change from the benchmark system, which has been around for 40 years, and would likely make the market more volatile," said Banif's Mr Cardoso.

In recent years, Vale has customarily set the benchmark price after long talks with leading Chinese steel mills, and then other miners and mills have followed suit.

But the world's largest ore buyer, China, may not want quarterly deals.

"While the Japanese seem disposed to accept these three-monthly contracts, the Chinese will likely try and avoid this change," said Link Investimentos.

Mr Cardoso said the upside of IODEX is that it's good for miners when prices are rising. "It captures the real value of the market," he noted. "It also detects market trends quickly."

However, the downside would be greater volatility.

Mr Cardoso criticised the tone of iron ore-bargaining undertaken via the media, which he said was "too aggressive, with prices discussed by fax instead of the usual long talks. They don't seem able to speak to each other directly."

Spokesmen for Vale declined to comment specifically on price talks, pointing to its latest media release.

Tight supply is at the heart of current negotiations.

Valor said Vale has told clients that demand for iron ore this year is 1.032 billion tonnes but there is only one billion in supply.

Although miners have bright prospects for the 2010 contract year, and maybe all the way into 2012, what are the medium-term consequences?

Mr Cardoso said he believes there will be more mergers and acquisitions among both producers and steel mills.

"Higher ore prices will accelerate new business opportunities; there'll be more company takeovers, joint ventures and expansion of mining projects because of strong cash-flow from the high prices," he predicted.

"We're already seeing China buying mining assets in Africa and Brazil, just like Japan did with its trading companies years ago," he added.

Cheers Kanga
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