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Strategies & Market Trends : China Warehouse- More Than Crockery -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (5737)	2/22/2006 2:11:04 PM
From: RealMuLan	Read Replies (1) \| Respond to of 6370

[Well done!]--China pull to limit ore hike China's growing influence on how much steel mills will pay mining companies for iron ore could limit price hikes this year to as little as 5 percent, the lowest rise in three years. Thursday, February 23, 2006 China's growing influence on how much steel mills will pay mining companies for iron ore could limit price hikes this year to as little as 5 percent, the lowest rise in three years. A modest-sized price hike would curb profit by hundreds of millions of dollars for the world's top suppliers and lessen earnings for a legion of smaller miners worldwide. Iron ore mining is a high-cost business where hundreds of millions of tonnes of ore must be dug up and sent to distant ports for shipment to the giant steelmaking mills of Europe, Japan, Korea, Taiwan and, increasingly, China. The mining companies managed a whopping 71.5 percent price hike last year for iron ore, which fattened the bottom line for a number of companies, but angered steelmakers. "At the end of the day, the commodity prices are certainly above long- term trends and miners are making a lot of money," said Stephen Bartrop of Austock, who is calling for a 5 percent hike, among the lowest of the forecasters. Operating income for BHP Billiton alone more than doubled to US$2.28 billion (HK$17.78 billion) in the first half from sales of iron ore and coking coal. Each 1 percent rise in iron ore prices adds about US$14 million to the bottom line of Rio Tinto, another major producer. China's giant steelmaking industry was until recently excluded from talks that traditionally pitted Japanese and European steel mills against the big Australian and Brazilian iron ore miners in the annual talks. To reduce dependence on its traditional iron ore suppliers, China is developing its own iron ore deposits and studying investments in India and Russia, at the same time as the central government is trying to slow the pace of expansion in steel plants, a Beijing- based analyst said. He also sees a small price rise for iron ore bought under contract. Spot iron ore prices in China have fallen to about 500 yuan (HK$482) a tonne, from about 1,000 a tonne last year when frenzied speculation resulted in a surge in spot iron ore imports, primarily from India. "Suppliers in Brazil and Australia are under a certain amount of pressure, too. They have put a lot of money into expanding their mines, so they need to be sure they have someone to sell to," he said. Around 70 percent of the world's iron ore is mined by Brazil's CVRD, Rio Tinto and BHP Billiton. CVRD, which saw last year's 71.5 percent increase whittled down to around 60 percent due to unfavorable exchange rates, could be the loudest voice countering the Chinese demand for a small price rise, according to Austock's Bartrop. But analysts said China is now an imposing force and is pushing hard to keep prices in check. On-again-off-again talks to forge price and tonnage agreements by the end of the month have focused on falling freight rates, which are down as much as 50 percent in the last 12 months. This alone could translate into a 20 percent price increase for the miners if the mills agree to pay the same next year as this year, according to Citigroup's Alan Heap, the high end of analysts' forecasts. "Supply is tight and production is high, but we don't see more than a 20 percent increase next year," said Heap. Other analysts believe mills and miners would settle on a 7.5 percent rise due to shrinking steelmaking profits in China, which has curbed iron ore demand by almost a third so far this year. Nevertheless, China's steel output could approach 400 million tonnes in 2006, after growing by nearly 25 percent to 349 million tonnes in 2005, making it the world's top producing country. Much of the ore in Australia's Pilbara is exported to Japan by Rio Tinto and BHP Billiton, via their own railways and ports. Iron ore miners and steel mill executives from around the world will meet in Perth, Australia for a global conference Thursday and Friday to discuss the pricing. REUTERS thestandard.com.hk