news, page-3

Steelmakers May Pay Record Iron Ore Prices Till 2013 (Update1)

By Tan Hwee Ann

April 16 (Bloomberg) -- Steelmakers may keep paying record iron ore prices until 2013 because Cia. Vale do Rio Doce and rival mining companies can't meet surging demand from China, Credit Suisse Group says.

Prices of the key steelmaking ingredient may rise 10 percent next year and 3.2 percent in 2009, analysts Roger Downey and Ivan Fadel said in an April 13 report. They may stay at a record until a forecast 7 percent fall in 2013, it said.

China overtook Japan as the largest buyer of iron ore in 2003 as its economic expansion fuels the making of cars, buildings and appliances. Prices have risen for the past five years, helping Brazil's Vale, Rio Tinto Group and BHP Billiton Ltd. to post record profits and spend billions on expansion.

``All the announced projects by majors will be insufficient and we expect further expansions by majors and by new entrants,'' said Downey and Fadel. ``There will be continued growth in iron ore demand post 2010.''

New capacity expansion will be more costly, and drive up long-term iron ore prices to $40 a ton, the report said. Iron ore prices from Vale, the world's largest exporter of the ingredient, rose 9.5 percent to $44.47 a ton this year.

Shares of BHP Billiton, rose 41 cents, or 1.4 percent, to A$30.26 on the Australian Stock Exchange, and Rio Tinto rose A$1.54, or 1.9 percent, to A$83.74 at 2:38 p.m. Sydney time.

Most analysts had been predicting iron ore prices would either fall or stay unchanged in 2008, expecting miners to catch up with demand. That's changed in the past two months amid signs China's demand may be greater than expected.

`Continued Growth'

China would require an additional 260 million metric tons to 270 million metric tons of iron ore to feed steelmakers by 2010, the analysts said. Mining companies, including new projects from MMX Mineracao e Metalicos SA, will add 190 million tons by then, they said. New projects may also be delayed, Credit Suisse said.

MMX, which is controlled by Brazilian billionaire Eike Batista, is investing $3.6 billion to build mines. BHP Billiton on March 23 said it will spend $2.2 billion expanding mines, and rival Rio in February approved a $860 million expansion of an iron ore port.

Australia and Brazil each account for about 36 percent of global iron ore exports, followed by India as the third-largest exporter with a 14 percent market share, Citigroup Inc. has said.

Rising Prices

The Credit Suisse analysts raised their iron ore prices estimates for the 12 months from April 1 2008 to a 10 percent gain, from a 5 percent rise, as China increased imports more than estimated. Cyclones in Australia, where BHP and Rio have their mines, India's export tax on iron ore, and delays in projects will also strengthen the bargaining powers of miners, they said.

Goldman Sachs JBWere Pty., Deutsche Bank AG, and UBS AG in the past month raised their iron ore prices for next year. Goldman expects iron ore to gain 5 percent, instead of a 10 percent fall. Deutsche Bank expects the commodity to rise 10 percent, instead of a 5 percent decline. UBS expects a 10 percent gain, up from unchanged.

Chinese steel production could rise by 17 percent in 2007, which would send the global iron ore market into a one percent deficit, Credit Suisse said.

Baoshan Iron & Steel Co., China's largest steelmaker, said in January it expects steel-product output to rise 10 percent to 23 million tons in 2007, and wants to more than double that to at least 50 million tons by 2012.