Analysts from the broker firm believe the iron ore supply and demand outlook is tighter than in the Japanese fiscal year of 2005 when contract prices were settled at above 71.5%.
Couple that with China's low iron ore inventories at ports and low imports due to a lack of ore availability and freight service, and Merrill Lynch has forecast a 30% price rise in 2008, with a settlement of over 50% "not unrealistic".
To add more fuel to the iron ore fire, analysts at the brokerage said if BHP and Rio could agree to a "landed cost" (freight equalisation) of $US128 per tonne next Japanese fiscal year – and assumed the freight from Australia to China stayed the same – the country's iron ore producers would see a rise from $50.70 per tonne to $100/t.
News of Merrill Lynche's calculations and projections sent most iron ore stocks into positive territory, with Fortescue Metals Group recording its second record high for this week, touching an intraday high of $A50 before closing at $49.68 – a gain of $1.18 or 2.4%.
Ferrowest took out the iron ore plays' top honours, doing so on no news, with its share price climbing 5.5c (12.4%) to 50c, while IC2 Global firmed 1.5c (10.7%) to 15.5c.
Other notable movers were Portman, up 70c (6.4%) to $11.70 and merging entities Sundance Resources and Gindalbie Resources which added 5.5c (7.1%) to 83c and 9c (5.8%) to $1.655 respectively.
Of course some bucked the trend, most notably Midwest Corp as it battles it out with the Western Australian Government over two issues.
This morning the Mid-West iron ore miner said it was seeking an urgent meeting with the state's planning and infrastructure minister after the State Government rejected a request to extend its permit to transport iron ore from its Koolanooka stockpile to Geraldton by road, meaning haulage must cease at midnight this Saturday.
Additionally, the State's treasurer has ripped into the company over its State Agreement – which it has indicated it would like to terminate – accusing the company of having "no basis to claim to investors that it has a workable agreement with the State for port and rail development".
Midwest has built a proposal, along with private company Yilgarn Infrastructure, on the State Agreement for the construction of port and rail facilities for WA's Mid-West.
The bad news day for the iron ore miner saw its share price drop 13c (4%) to $3.16, and was kept company by Admiralty Resources, which shed 4c (8.1%) to 45.5c and takeover target and fellow Mid-West iron ore play, Golden West Resources, which dipped 10c (4.6%) to $2.10.
Stepping away from iron ore it was an overall healthy day for resource stocks, with the S&P-ASX 200 index reaching its third record high for this week of 6550 points before closing at 6538, a gain of 56.7 or 0.9%.
Talisman Mining topped the highest movers list, surging 15c or 51.7% to a new high of 44c on no news and heavy trading of shares, prompting an ASX query.
Gondwana Resources jumped 0.7c (50%) to 2.1c while news that Tawana Resources had acquired a 30% interest in the St Augustine's kimberlite in South Africa saw its share price shoot up 4c (33.3%) to 16c.
Meanwhile nickel hopeful Allegiance Mining has entered a trading halt pending an announcement.
Chairman Tony Howland-Rose told Dow Jones Newswires the announcement has nothing to do with corporate activity. Analysts speculate the announcement is likely to be an update on the company's Avebury nickel mine in Tasmania.
Over the past month, Allegiance's share price returns have been at 24%, a good sign following news of a delay to its mine earlier this year caused a sell off in July and August.
Allegiance last traded at 77.5c.
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Cheers kanga
CFE Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
(20min delay)