bhp/rio hike iron ore prices ...

Hmmm ... this is interesting ...

Iron talks steel miners

By Andrew Trounson - The Australian
January 25, 2005

SHARES in Rio Tinto and BHP Billiton powered to record highs yesterday, adding $3 billion to their market value on news Brazilian iron-ore rival CVRD is seeking to slap steel mills with a massive 90 per cent increase in prices.

Australian producers Rio and BHP Billiton shocked their Japanese customers earlier this month with a demand for a price increase of more than 50 per cent for iron ore delivered from April 1 - the largest ever rise.
While CVRD's claim may be only an opening gambit, it will encourage the Australians to stand by their demand when price talks restart in Tokyo later this week, or early next week.

Rio shares gained $1.45, or 3.5 per cent, to $42.70, with BHP Billiton 35c higher, or 2.2 per cent, better at $15.95. Combined with strong trading in London last night, the gains added $3 billion to the value of the dual-listed companies.

Since Christmas, analysts have been scrambling to raise their iron-ore price forecasts as news filtered through that producers were taking a hard line. They are determined to cash in on recent massive hikes in steel prices and tight iron-ore supplies in the wake of a rapid expansion in China's steel production.

Analysts yesterday were largely sticking by forecasts for a 30-50 per cent rise, believing CVRD was merely setting out an initial negotiating position. "I'd find it highly unlikely that the steel companies would go for something like this (a 90 per cent rise,)" ANZ commodities analyst Daniel Hynes said.

The world's second-largest steel producer, Luxembourg-based Arcelor, said as much last week, dismissing calls for a 50 per cent rise as "absurd".

But, after the Japanese steel mills caved in on a near 120 per cent rise for 2005-06 hard coking coal prices, there is scope for iron ore prices to surprise on the upside.

But analysts warn that in gunning for massive price rises, the Australian producers risk encouraging new entrants in Western Australia that could weaken their hold on supplies, especially if disgruntled Japanese and Chinese steel mills move to offer lucrative terms to get new players up.

Between them CVRD, Rio and BHP control close to 80 per cent of the seaborn iron- ore trade.

Andrew Forrest's Fortescue Metals is aggressively pushing the development of its Chichester Ranges project in the Pilbara, while iron-ore heiress Gina Rinehart and Anglo American are wrangling over the development of their Hope Downs deposit.

US iron ore miner Cleveland-Cliffs has launched a $605 million takeover for iron-ore miner Portman and could become a new consolidator and source of growth for the sector.

"If you push prices too hard you'll encourage new producers to bring that production on, and once they are producing they are there to stay," UBS resources analyst Glyn Lawcock warned, noting there was production equivalent to 20 per cent of world demand waiting in the wings.

Mr Lawcock said it would be difficult for the iron-ore producers to replicate the hard coking coal increase, given that iron-ore production was being aggressively expanded, while coking coal expansions was more limited and exports constrained by stretched rail and port infrastructure on the east coast.

Mr Lawcock is expecting iron-ore prices to fall by about 15 per cent in 2006-07, based on a 40 per cent rise in 2005-06.

Mining consultants Caiani & Co warn that the "crazy" short-term price increases sought by producers risk undermining markets in the longer term.
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Cheers ... tight stops.


This is only my view ... read the red stuff.