iron-ore prices to fall less than expected

Iron-Ore Prices to Fall Less Than Expected, Itau Says (Update1)
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By Diana Kinch

Feb. 11 (Bloomberg) -- Contract iron-ore prices will fall less than previously forecast this year after mining companies slashed output and as Chinese stockpiles fall, Banco Itau Holding Financeira SA said.

Prices for the raw material will likely decline 20 percent starting in the first quarter, Itau analysts led by Marcelo de Brisac said today in a note to clients. Itau previously forecast a drop of 30 percent as of the second quarter.

Credit Suisse Group AG and Ativa Corretora have also said that iron-ore price cuts this year may not be as severe as previously forecast after spot-market rates in China rose in recent months and demand picked up. The market had expected iron ore to fall as much as 40 percent during annual negotiations between producers and steelmakers, Credit Suisse has said.

Still, the benefits to Cia. Vale do Rio Doce will be limited because of the size of the company’s output cuts, de Brisac said. Itau reduced its 2009 estimate for Vale’s American depositary receipts to $23 from $29. Cia. Siderurgica Nacional SA will benefit the most because it won’t trim output in 2009, prompting Itau to raise its rating on CSN to “outperform” from “sector-perform,” he said.

Gerdau SA’s rating was lowered to “underperform” from “sector-perform,” while Usinas Siderurgicas de Minas Gerais SA was cut to “sector-perform” from “outperform,” Itau said.

To contact the reporter on this story: Diana Kinch in Rio de Janeiro at [email protected]

Last Updated: February 11, 2009 11:53 EST