Iron Ore Prices May Rise 30% to 50% from July

Copyright © 2010 Steven Jiang

Vale SA, BHP Billiton Ltd, and Rio Tinto Group may demand a 30 percent to 50 percent increase in the prices of iron ore in the July quarter, taking advantage of rising demand from steelmakers, according to Taiwan's China Steel Corp.

The forecast is "an opinion," Taiwan's largest steelmaker said in an e-mail reply to queries, but didn't give other details.

Vale and Melbourne-based BHP, the largest- and third-biggest exporters of iron ore, this year abandoned a 40-year tradition of setting prices annually in favor of quarterly contracts, with the Brazilian mill winning a 90 percent increase. Steelmakers have to raise prices to pass on the higher costs, the World Steel Association said this month.

Vale is offering Chinese steelmakers iron ore priced at $160 a ton, including freight charges, for the July quarter, Interfax reported today, citing an unidentified executive at Wuhan Iron & Steel Group Corp. That represents a 23 percent increase from the previous quarter, the report said.

Excluding freight charges, which averaged $27.622 a metric ton this year, Vale would be asking Chinese steelmakers to pay about $132 a ton for the ore for the July quarter, based on calculations by Bloomberg. Posco, South Korea's largest steelmaker, in April said it agreed to pay Vale $100 to $105 a ton for shipments between April and June.

Vale, BHP and Rio account for about two-thirds of the traded iron ore market. China said it was investigating the possibility that the three companies may be monopolizing supplies of the steelmaking ingredient.

China Steel made a smaller pretax profit in April compared with March as costs increased, according to a regulatory statement this month. Pretax profit in April was NT$4.7 billion ($148 million), or about 10 percent lower than in March.

Iron ore suppliers are using "inefficient and unsustainable" pricing systems, Macquarie Group Ltd analysts including Jim Lennon and Colin Hamilton said yesterday in a note. There's a lack of clarity about the period of data used to set contract prices, the inclusion of freight rates, and pricing for the different type of ore required by steelmakers.

Vale may be willing to let customers chose between three indexes, and has said it would use the average price over the months of March to May as the basis for the July-to-September contracts. Other companies haven't clarified the process used, the analysts said.

The spot price of iron ore imports into China on May 17 was $163.30 a ton, the lowest since April 7, according to The Steel Index. Metal Bulletin and Platts also publish price indexes.

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