Iron ore prices to soar on Asian steel demandReuters Tuesday...

Iron ore prices to soar on Asian steel demandReuters Tuesday November 20 2007
By Atul Prakash

MUMBAI, Nov 20 (Reuters) - Iron ore prices are expected to shoot up by 30 to 50 percent next year, as growing urbanisation in countries such as China and India is likely to boost demand for steel, a fund manager said on Tuesday.


"What's driving demand for metals is primarily urbanisation, with people moving from agriculture-based activities to manufacturing, services-based activities located in cities," Trevor Steel, managing partner of Baker Steel Capital Managers, told Reuters in an interview.
Speaking on the sidelines of a global conference organised by the London Bullion Market Association, he said that steel stood out in China in terms of an increase in production.
India had huge potential for growth and that was likely to impact demand for iron ore and coking coal in the country.
The London-based firm manages $850 million. It primarily invests in the energy, base and precious metals sector. Its Genus Natural Resources Fund manages about $500 million.
"There is no doubt that commodities have been increasingly viewed as a new asset class in the last few years and that led to an allocation by speculators as well as institutions and pension funds looking for diversification," he said."
A couple of hundred billion dollars had flown into the commodities market over the last two to three years, he said. Steel said easy money was being made in industrial metals, with prices of some commodities rapidly rising to new highs. In case of a downturn, the market would not see a dramatic collapse as fundamentals remained very strong.
But after a sharp rally in copper in the past months, prices were expected to stabilise, he said.
"I don't expect to see copper prices double from here, unless there are some extreme supply issues such as earthquakes. But in the absence of that I think that prices are probably going to stabilise within a range around current levels."
MINING STOCKS ATTRACTIVE
Steel said investors were not likely to make a lot of money out of buying copper and holding the metal, but there were fantastic opportunities to make money by investing in copper mining companies that could make very attractive returns.
"My strategy is to identify mining companies that have got above average organic growth potential. Because even if the metal prices stay where they are, great returns could be made."
He said gold as a commodity also appeared strong.
"Gold is only approaching its highs in nominal terms, but is still long away from its highs in real terms. If you look at every other commodity -- copper, nickel, lead, platinum, oil, iron ore, coal -- they all have made new highs."
Spot gold hit a 28-year high of $845.40 an ounce earlier this month and was just $5 below its all-time high of $850 hit in January 1980. After adjusting for inflation, the metal's historical high was equal to more than $2,000 an ounce at current prices, according to industry estimates.
"The cost of producing gold has gone up so much in the last few years, I think the industry needs a long term price of around $850 an ounce to make it an acceptable rate if return."
Once the $850 level was exceeded, volatility in price could pick up, he said, adding that the overall trend was still up, mainly driven by supply side issues. (Reporting by Atul Prakash; Editing by Peter Blackburn)
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