Iron Ore May Advance 25% Next Year, JPMorgan Predicts (Update1)...

Iron Ore May Advance 25% Next Year, JPMorgan Predicts (Update1)

By Carli Lourens

(Bloomberg) -- Iron-ore contract prices may gain 25 percent next year as mining companies fail to match the increase in demand, JPMorgan Chase & Co. said after increasing its earlier 10 percent estimate.

``This imbalance puts miners in a strong bargaining position at the annual price negotiations beginning October,'' the firm's Sao Paulo unit said in a report distributed late yesterday. Prices will probably rise 10 percent in 2009, it said.

Spot prices of the steel-making ingredient used by companies include ArcelorMittal and Baosteel Group Corp. almost doubled this year as Chinese steel production increased and shipping rates rose. Contract prices gained 9.5 percent to 81.45 U.S. cents per iron unit, following a 19 percent increase last year and a 71.5 percent jump in 2005.

Merrill Lynch & Co. expects contract prices to increase 30 percent next year, it said Sept. 7 after revising an earlier estimate for an 8 percent rise.

China, the world's largest buyer of iron ore, may boost imports of mineral by 18 percent this year, helping push global prices to a record for a sixth consecutive year, according to the China Metallurgical Mining Enterprise Association.

``The bottom line is that iron ore is ultimately a Chinese growth story,'' JPMorgan said in the report, adding that China's steel production reached a record 42.1 million tons in June.

Iron-ore contract prices may drop 15 percent in 2010 as growth in Chinese demand slows, according to the report.

Cia. Vale do Rio Doce, Rio Tinto Group and BHP Billiton Ltd. are the world's largest iron-ore miners.