Move over gold and base metals. Iron ore has moved to the centre stage and is seen as best bet for investment with price increase forecast.
Could touch $100 a tonne for BHP Billiton and Rio Tinto
KOLKATA: Move over gold and base metals. Iron ore has moved to the centre stage and is seen as best bet for investment with price increase forecast ranging between 25-100% for 2008 contracts.
Inching towards consuming half of global iron ore production, China has taken the sheen out of gold and base metals and instead added glitter to lumps and fines.
Currently at 46% of world production, China’s percentage consumption of iron ore is now the highest among all commodities compared to steel (37%), alumina (36%), aluminium (25%), gold (8%) and crude oil (8%).
The forecast of Chinese tailwind is on iron ore.
With negotiations between global miners and Chinese steel mills for 2008 iron ore contract price are poised to begin sometime next month end and continue beyond new year, J P Morgan and Merrill Lynch have predicted 25-30% price increases with Merrill Lynch not ruling out even a 50% hike.
A 30% increase will translate to a benchmark Australian ore price of $66.40 per tonne excluding freight compared to average price of $51.47 per tonne in current calendar.
According to analysts, should BHP Billiton and Rio Tinto, the two expected to set benchmark ore price with Chinese steel producers, agree to a landed cost of $128 including freight equalisation, and assuming no increase in freight charges, the effective price for Australian producers would be around $100 a tonne, a historical high.
Little wonder that Rio Tinto is working to increase output from 180 million tonne to 220 million by 2009, BHP Billiton from 107 million tonne to 300 million tonne by 2015 and CVRD will mine 298 million tonne next year.
But for Indian ore miners, the trend is proving to be a mixed bag. Even if a 20% increase in global ore price materialises, it would more than offset the Rs 300 per tonne duty levied on Indian ore to curb exports and put domestic mining companies back into profitable business.
But total Indian ore exports in 2007-08 could fall by one million tonne in face of severe bottlenecks and handling capacities at Mormugoa and Paradip, the two major ports that handle ore exports from western and eastern coasts.
In 2006, India exported 90 million tonne of iron ore fines.
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