The cash price for iron ore delivered to China, the world’s biggest buyer, rose the most in more than five months on concern exports from India will slow, boosting expectations for producers in annual price talks.

The price of 62 per cent iron-content ore delivered to Tianjin port
jumped 5.4 percent to $US118.20 a metric ton yesterday, according to
prices from The Steel Index.

That’s the highest this year and the biggest one-day gain since July 10.

Cash prices have more than doubled from their 2009 low in March because
of demand from steel mills in China, the biggest user, that’s prompted
brokers to raise contract price forecasts and India to impose a duty on
its ore exports to boost domestic supply. Vale SA, the world’s largest
producer, said this month it may delay starting contract talks until
early next year.

“It’s perfect timing for the producers, they must be rubbing their hands,” ANZ analyst Mark Pervan said.

“The Chinese will be particularly annoyed because they were probably looking to negotiate early this year.”

Australia’s third-biggest exporter, Perth-based Fortescue Metals Group,
advanced 2 per cent to a four-month high of $4.44 at the close on the
Australian stock exchange.

BHP, the world’s third-largest exporter of the ore, rose one per cent to $43.12.

Rio Tinto, the second-biggest, increased 0.3 per cent at $74.89.

The cash price, which has jumped 19 percent in four weeks, is trading
at 57 percent more than the current contract price, said ANZ’s Pervan,
who will be revising his own forecast to more than 30 percent from 20
percent. Iron-ore suppliers hold annual talks with steelmakers to fix
contract prices for the 12 months from April 1, the start of the
Japanese financial year.

The four-decade-old annual iron ore pricing system was fractured this
year after Chinese mills failed to reach agreement with the three
largest suppliers, boosting demand for cargoes settled on the cash
market. Producers earlier agreed to a 33 percent cut in contract prices
with mills in Japan and Korea as worst global recession since World War
2 cut demand.

Shipments from India, the world’s third-largest exporter, may be at
least 4.5 per cent below an earlier forecast after the government
raised duties, the Federation of Indian Mineral Industries said
yesterday.

India said December 24 it had imposed a 5 percent duty on exports of
iron-ore fines and doubled the tax on iron-ore lumps to 10 per cent.

“There has always been that risk that India was going to start to try secure more of its domestic supply,” ANZ’s Pervan said.

“The market is expecting a pull-back in Indian exports. Really at the
end of the day iron ore is a location story. If you can’t get it from
the closest source which is India, you get it from the second-closest
source, which is primarily Australia.”

Rio Tinto said this month it had agreed to sell ore to India’s Essar Steel for the first time.

India, traditionally an iron ore exporter to China, plans to spend
$8.95 billion in the year ending March 31 to improve infrastructure and
boost economic growth.

The global trade is worth about $160 billion a year.

The China Iron & Steel Association said there was a “large degree
of difficulty” in the annual talks as producers are seeking a 20 per
cent to 30 percent increase, Dow Jones reported yesterday, citing the
China Securities Journal.

Rio Tinto this month appointed a new chief negotiator with Asian
steelmakers after four of its executives were detained by China in July.

China may import 70 per cent of its iron ore needs this year, up from
50 percent last year, Baosteel’s Chairman Xu Lejiang said Dec. 3.
Imports rose 12 percent last month as steelmakers boosted output to
meet demand from makers of cars and appliances.

Analysts at Macquarie Group and JPMorgan Chase this month raised
forecasts for annual contract prices after a surge in Chinese demand.

Macquarie estimates prices may rise 30 percent while JPMorgan joined
UBS and Goldman Sachs JBWere in predicting a 20 per cent gain.

Source: Bloomberg

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