Rio Anticipates Substantial Increase in Next Year's Iron Ore Prices
By Ida Chen
28 Nov 2007 at 09:27 AM GMT-05:00
resourceinvestor.com
SHANGHAI (Interfax-China) -- Long-term contracted iron ore benchmark prices will see substantial growth in 2008 on the back of tight market supply, a Rio Tinto [NYSE:RTP; LSE:RIO; ASX:RIO] executive said during a shareholder meeting on Monday.
"The 2008 benchmark iron ore price negotiations have kicked off in Asia and Europe, taking place against the backdrop of spot prices from India to China that are approaching $200 per tonne. The iron ore market is tighter than it has ever been, so a very substantial price increase can be anticipated," Sam Walsh, chief executive of Rio Tinto Iron Ore, said.
The spot price from India to China is currently nearly $100 higher than this year's benchmark price. Iron ore demand is strong and getting stronger, not only in China, but also in India, the rest of Asia and the Middle East, Walsh said.
"We're addressing the freight differential as a major part of the current price negotiations," he said.
The company also expects renminbi appreciation, meaning domestic Chinese producers will face rising costs in U.S. dollar terms, which will reinforce the position of low-cost producers like Rio Tinto, Walsh said.
Referring to BHP Billiton's [NYSE:BHP; LSE:BLT; ASX:BHP] three-for-one share proposal, Rio's chief executive officer, Tom Albanese, said that the proposal fundamentally undervalues the company and its prospects. Rio's board rejected the all-share acquisition offer by BHP early this month.
"At a time of strong and sustained demand, the quality of a company's resources is critically important, and there has never been a time when a development pipeline like ours has been so important for the valuation of the company," Albanese said. "So we believe that the value of Rio Tinto is not reflected in our share price nor in BHP Billiton's proposal. This is one of the reasons why our board unanimously rejected the proposal on behalf of the shareholders of Rio Tinto."
China Investment Corporate (CIC), which manages a $200 billion state foreign exchange, denied in a statement that it was involved in a bid for Rio Tinto, state-run Xinhua reported yesterday.
The statement came after a China Business Journal report that CIC was leading a group of Chinese steel mills in a bid for Rio Tinto, blocking a rival offer by BHP Billiton.
Rio also said Monday that the company is not involved with any other potential suitors and is not considering a counter-bid for BHP.
The proposed merger between the world's two leading mining groups has aroused concern over their combined market power over iron ore.
The German Steel Federation called on the European Commission yesterday to oppose the proposed BHP-Rio merger, saying the merger would increase pressure on iron ore prices and would limit access to raw material for the steel industry, according to a press release.
"Such market domination leaves nearly no room for negotiation on price. There would be no real competition," Dieter Ameling, president of the German Steel Federation, said yesterday in Dusseldorf.
The European Steel Industry also called on the European Commission last week to oppose the proposed BHP-Rio merger.
BHP promised Chinese steel mills that the proposed merger will not be factored into the 2008 annual benchmark iron ore price negotiation, said Luo Bingsheng, vice chairman of China Iron and Steel Association in Beijing, on Monday.
© Interfax-China 2007. For more intelligence on Chinese metals and mining, contact David Harman in Hong Kong at david.harman@interfax-news.com or (852) 2537-2262. |
