CVRD cuts shipments, iron ore prices expected to soarJanuary 9,...

CVRD cuts shipments, iron ore prices expected to soar

January 9, 2008

SPOT prices for iron ore in China, the world's biggest buyer of the steelmaking raw material, may test a record after Cia Vale do Rio Doce said one of its Brazilian ports would halt shipments until February, mills and traders said.

"Spot prices will go higher if Vale cuts supplies," Gao Feng, an iron-ore purchase official at Taiyuan Iron & Steel, China's biggest stainless steel producer, said yesterday.

Cash prices have surged to about four times the annual contract price because of rising shipping costs and demand from China.

Repairs required after a harbour collision will disrupt shipments of 60,000 tonnes a day from Itaguai port in Rio de Janeiro state, Vale, the world's largest iron-ore producer, said on Monday.

"The disruption will create tightness on the spot market," Helen Wang, an analyst with DBS Vickers Hong Kong in Shanghai, said.

The cash price of iron ore imported into China rose by 2.1 per cent to 1480 yuan ($231.55) a tonne last week at Beilun, where Baosteel Group, the nation's largest mill, receives shipments, according to data from Beijing Antaike Information Development. The price matched a record of 1500 yuan on December 21.

Last month Vale said an accident forced it to stop loading iron ore at the Port of Sepetiba near Rio de Janeiro. Vale had to postpone at least 20 shipments last month after delays caused by rains and protests. The Rio de Janeiro company said on Monday that Itaguai was the smallest of the company's four ports, handling 25 million tonnes a year of iron ore.

Vale expected to sell about 90million tonnes of iron ore to China this year, according to Chen Xianwen, head of market research at China Iron and Steel Association. The company was expected to mine 300 million tonnes of ore last year.

Prices for India ore will also increase, according to Liang Ruodong, deputy general manager of the metallurgy and energy department at Sinochem International, which sells Indian iron ore in China.

The latest disruption comes as Vale, Rio Tinto and BHP Billiton, which account for three-quarters of global iron-ore trade, continue talks to set benchmark contract prices for this year with Chinese steelmakers.

The contract price of iron ore has risen the past five years to a record as China boosted steel output. Prices will gain 50 per cent this year on massive demand from China, compared with a market consensus of 35 per cent, Lehman Brothers said last month.

Wang Liqun, head of raw material purchasing at Baosteel, said it had not received notice of any supply reduction. Taiyuan Steel and Baosteel buy Vale's ore on long-term contracts.

Rio, the world's second-largest iron-ore exporter, said last month it would more than triple iron-ore sales in the cash market.