Min­ers to gain from iron ore

The Weekend Australian - Travel - - Resources / Engineering & Mining -

BAOS­TEEL, China’s big­gest steel­maker, says iron ore sup­plies are lag­ging be­hind de­mand from the coun­try’s mills, in­di­cat­ing it may strug­gle to hold down prices in talks with min­ing com­pa­nies led by BHP Bil­li­ton. ‘‘ Sup­ply isn’t meet­ing de­mand,’’ chair­man Xu Le­jiang told re­porters dur­ing the Com­mu­nist Party congress in Bei­jing this week. ‘‘ China’s steel in­dus­try grew very fast this year.’’

Baos­teel may have to ac­cept a big­ger in­crease in bench­mark iron ore prices than the 9.5 per cent gain it ne­go­ti­ated at the end of 2006, the small­est ad­vance in four years. Prices of the ma­te­rial surged last month to more than triple the 2007 bench­mark. An­nual con­tract talks start this month for ship­ments from April.

‘‘ The mar­ket is ex­pect­ing iron ore prices to go up by 25 per cent to 50 per cent, and that’s a re­flec­tion of the tight­ness in the mar­ket,’’ Ric Ronge, who helps man­age A$1.9 bil­lion ($1.7 bil­lion) at Pen­gana Cap­i­tal, said in Melbourne. ‘‘ Baos­teel and the steel­mak­ers would have to pass on the cost to cus­tomers.’’

China wants to hold down costs as steel mills seek to meet de­mand for cars, rail­roads and build­ings and the Gov­ern­ment tries to curb in­fla­tion. The coun­try has dou­bled steel out­put in the past four years to ex­ceed the com­bined pro­duc­tion of the US, Rus­sia and Ja­pan.

Shang­hai-based Baos­teel plans to more than dou­ble ca­pac­ity to 80 mil­lion tonnes from the cur­rent 30 mil­lion tonnes by build­ing new plants and ac­qui­si­tions, the com­pany said. ArcelorMit­tal, the world’s big­gest steel­maker, pro­duced 118 mil­lion tonnes last year. Steel­mak­ers in China may this year reach to 500 mil­lion tonnes.

The in­crease will pro­vide record prof­its for com­pa­nies such as BHP, the world’s big­gest min­ing com­pany, and Cia Vale do Rio Doce, the world’s largest iron ore pro­ducer. Brazil’s Vale may dou­ble earn­ings from iron ore by 2009, ac­cord­ing to Cit­i­group.

Cash prices for iron ore surged to $185 a tonne, com­pared with the 2007 bench­mark Aus­tralian price for long-term con­tracts of $51.47, Credit Suisse Group said re­cently.

Vale, BHP and Rio Tinto Group may raise prices 30 per cent, ac­cord­ing to the me­dian fore­cast of eight an­a­lysts sur­veyed by Bloomberg.

China’s steel­mak­ers may face lower profit mar­gins as the Gov­ern­ment seeks to rein in ex­ports, which can of­fer higher prices, and curb in­fla­tion. Steel ex­ports dropped in Septem­ber for the fourth straight month, reach­ing a sev­en­month low, af­ter the Gov­ern­ment re­duced tax breaks and raised shipment du­ties.

‘‘ Steel ex­ports will keep de­creas­ing in the sec­ond half and next year, while the Gov­ern­ment may in­tro­duce more poli­cies’’ to curb ship­ments, Xu said. Baos­teel, which sold shares of its unit Baoshan Iron & Steel Co for the first time in 2000 in Shang­hai, still in­tends to list its shares abroad, ac­cord­ing to said. Baoshan Iron & Steel said a year ago it planned a for­eign pub­lic of­fer­ing by 2010.

‘‘ We’ve never given up the plan to list over­seas, but we haven’t de­cided the tim­ing or mar­ket,’’ Xu said.

Bloomberg

Squeezed: Steel-hun­gry China’s de­mand for iron ore is ex­ceed­ing sup­ply, in­di­cat­ing higher prices ahead for BHP and other min­ers

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