up to 10 per cent iron ore increase expected for 0

Iron-Ore Price Rise "May Be up to 10%"

By Charlotte Mathews
20 Sep 2006 at 08:56 AM EDT

JOHANNESBURG (Business Day) -- Iron-ore price negotiations next year were likely to result in a settlement between a rollover of current prices to an increase of about 10%, Numis Securities analyst Simon Toyne said in a report yesterday.
Iron-ore price negotiations are critical to South African producers such as Kumba [JSE:KMB] and Assmang, which are relatively small in global terms but significant companies to the JSE. South Africa’s total iron ore sales in 2004 were worth R4.6 billion (US$623 million), including R1.1 billion (US$149 million) sold locally, which made South Africa the eighth-largest iron-ore producer in the world, according to Chamber of Mines figures.



Toyne said the latest statistics on Chinese production supported his view on price settlements. They showed Chinese crude steel production rose 18.6% to 272.5-million metric tons in the eight months to August compared with the same period last year.
While China’s own iron-ore production was growing rapidly, taking away some of the supply previously met from imports, this production was of low grade compared with Australian and Brazilian iron ore. It was also being mined from small, deep mines with high levels of pollutants, and the Chinese government was discouraging such operations.
Longer term, the trend of situating large blast furnaces on the coast of China would spur imports of iron ore rather than high-cost, low-quality domestic products, Toyne said. These trends favoured companies such as Rio Tinto [NYSE:RTP] and BHP Billiton [NYSE:BHP], with substantial exposure to the sector.
In a separate report, Morgan Stanley chief economist Stephen Roach said the rush to commodities as a financial asset had taken on a life of its own. A recent Ibbotson study had suggested that commodities should have a weighting of 30% in a diversified, balanced investment portfolio.