CHINA'S continued demand for steel has sent iron ore spot prices back to nearly $US100 a tonne and led Credit Suisse to follow other forecasters in boosting iron ore and coking coal forecasts.
The bank says the price increases will help add about 20 per cent to the bottom lines of BHP Billiton and Rio Tinto and strip that much from Australia's biggest steelmaker, Bluescope.
In an upgrade that has lagged those of many other forecasters, Credit Suisse analysts said they now expected BHP and Rio to secure 15 per cent gains in 2010 iron ore contract prices in talks expected to resume soon, and 26 per cent the following year.
The bank had previously been forecasting little change in both years from the current contract and provisional prices of about $US60 a tonne before freight.
This year's fraught iron ore talks with China were never settled, with provisional prices paid by Chinese mills after Rio iron ore executive Stern Hu and three other staff were detained.
Iron ore spot prices into China, which include freight costs, have climbed steadily higher since early September, hitting a two-month high of $US99.50 a tonne this week, according to Metal Bulletin pricing.
Freight prices from Australia to China are currently about $US15 a tonne, meaning spot prices are well above current contract prices and, when current shipping costs are applied, approaching 2008's record contract price of $US90 a tonne.
"We see benchmark price upgrades coming for iron ore and metallurgical coal on strong steel production, which should improve further when the world (ex-China) recovery kicks in," Credit Suisse analyst Paul McTaggart said.
"The (iron ore and coking coal) supply side froze some infrastructure development with the onslaught of the global financial crisis and will now be hard-pressed to meet demand until new developments reach completion in 2012."
Credit Suisse raised its 2009-10 BHP earnings forecast by $US1.7bn to $US10.43bn. Rio's 2009 earnings forecast were lifted from $US4.38bn to $US5.23bn.
Bluescope's forecast fell from $169m to $138m.
CZA Price at posting:
$1.88 Sentiment: LT Buy Disclosure: Held
