iron ore price tipped to surge 30% in 2010

From todays Australian

SURGING demand for iron ore is causing bottlenecks at China's ports and has pushed spot prices to their highest levels since the financial crash.

Australian iron ore exports are set to hit record levels in the year ahead.

Australia's mining companies are earning 57 per cent more from every tonne of steel sold to China at the current spot price than they are getting from their fixed price contracts with Japanese and Korean mills.

Acrimonious negotiations between the iron ore miners and the Chinese steel industry broke down in May this year when China refused to accept the 33 per cent price cut settled with Japanese and Korean mills, holding out for a 45 per cent cut.

Although spot prices fell in the early part of the year, they have been rising since May with a strong rally over the last four weeks lifting prices to $US107 a tonne for high-quality ore, an 82 per cent increase from the low point in March.




A research report prepared by Macquarie Bank said congestion at Chinese ports reached record levels on Friday, with over 36 million tonnes of ore sitting in ships waiting to dock, making shortages at the mills more acute.

"With steel output and demand expected to continue rising through 20120, we expect trade in seaborne iron ore and metallurgical coal to reach record levels," the report said.

Macquarie expects Australia's iron ore miners to be able to negotiate a 30 per cent increase with China's mills next year, although it says continuing supply bottlenecks could force prices even higher.

China's economy is expected to achieve economic growth in excess of 8 per cent this year and close to 10 per cent in 2010.

The government last week revised up its estimate of 2008 growth from 9 to 9.6 per cent, with its GDP about to pip Japan's as the world's second-largest economy.

China's deputy finance minister, Zhang Shaochun, said last week that the government was sticking to its fiscal stimulus spending plan to pump the equivalent of almost $200 billion into the economy over 2010.

Macquarie says demand for iron ore is now risingglobally as economic recovery strengthens. Since a low point in May this year, production has risen by 50 per cent in the US, 34 per cent in Europe and 41 per cent in Japan.