iron ore price expected to rise

GINDALBIE Metals expects iron ore prices to rise by as much as 20 per cent next year followed by a smaller increase in 2010, and says demand for the bulk commodity will remain strong for the next decade.

Managing director Garret Dixon said he did not agree with the conservative outlook for iron ore prices shared by some analysts, saying oversupply was still a long way off.

This was because several proposed mine developments and expansions would not be able to get up due to difficulty obtaining funding as financial market volatility continues.

"A 20 per cent rise next year might be achievable and there is certainly talk of a smaller one the year after," Mr Dixon told journalists at the Diggers and Dealers conference in Kalgoorlie, Western Australia.

"We don't subscribe to the theory that it is suddenly going to fall to the depths which some of the analysts do.

"Why we don't subscribe to that theory is that all of the infrastructure is full at the moment so any new projects have roughly the same amount of capital intensity - it doesn't matter if it's us or BHP or Rio.

"I think we're also seeing projects are harder to develop than people think.

"We're not convinced that all the projects out there will ramp up as quickly as has been talked about.

"We still see some demand in the market.

"The fundamentals remain."

Mr Dixon said the benchmark system for iron ore pricing would remain for a while but it required some refinement.

"There has been quite a push to move away from it.

"It's served the industry well.

"From what I've seen, the steel makers and iron ore producers are relatively comfortable with it.

"We might move into (a pricing separation based on) some very high grade iron ore and some lower grade.

"We've seen that already with lump going up 95 per cent and fines only went up by 85 per cent.

"Lump is getting harder to find and is a premium product."

Mr Dixon added that "China's bubble will not burst" for the foreseeable future, with growth of about 8 per cent this year.