AUSTRALIA’S miners are set for another multi-billion-dollar bonanza from China this year with spot prices for iron ore and coal climbing rapidly ahead of contract negotiations for iron ore that may not reap any result.

Iron ore spot prices have soared by 84 per cent since the last
contracts in the sector were struck with Japan and South Korea last
May, and are up 20 per cent in the past month.

The Steel Index, a leading provider of price independent price
information, reported that the cost of iron ore delivered to Tianjin
port increased 2.9 per cent to $US124.80 per tonne on Wednesday, the
highest price for a year.

Thermal coal prices out of Australia have risen 16 per cent since
November and coking coal prices have jumped by $US20-$US40 per tonne in
the past month to $US190 per tonne, according to UBS analyst Tom Price.

“Prices across seaborne trade (Australia, US) are rising from the
stable $US170 per tonne level, reflecting persistent demand from market
newcomer China and a recovery in demand from traditional users, Korea
and Japan,” Mr Price said in a note this week.

There is a raft of reasons behind surging iron ore prices , led by a
new export tax in India and steel pricing in China creeping higher amid
solid demand.

There is restocking by China’s steel mills ahead of the widely expected contract price rise, if one is reached.

China did not recognise the benchmark Rio set in May with Japan;
instead chose either spot or contract, whichever was less, as there was
little competition from traditional buyers in Japan, Korea and Europe,
Mr Price said. He also cited the “generally held view that global
economy recovery” would “continue into 2010″.

Also China’s steel prices are edging higher and demand appears robust.

The market has continued to push up expectations for new contract
prices with estimates of 20-30 per cent price jump. Macquarie has
predicted contract prices for iron ore will soar 30 per cent from last
year’s price of about $US60 a tonne.

Despite the heady prices for the mineral, China has been pushing for
lower price rises and this is already casting doubt over whether a
benchmark price can be reached between the major iron ore producers and
Chinese steel mills.

Such a result would see a further windfall for Australian miners,
shareholders and government tax revenues as real prices would come in
at well above current contract prices and probably higher than a 30 per
cent lift on last year’s rates.

Half-yearly contract talks for coking coal are due in April. Coking
coal burns at very high temperatures and is used in blast furnaces to
make metals such as steel.

“We continue to expect the Chinese market to be in deficit (of coking
coal) for 2010, underpinning our bullish outlook for the commodity,”‘
UBS analysts in New York said this week.

“Furthermore, the US steel sector continues to improve (our steel team
recently raised its expected 2010 capacity utilisation rate to 70 per
cent), suggesting the anticipated recovery in high volume metallurgical
(coking) coal could be under way; this is supported by recent comments
from coal management teams.”

Last year’s iron ore price talks collapsed in acrimony after both sides
failed to agree on a price and China’s State Security Department locked
up four executives from Rio Tinto, including Australian Stern Hu, who
still remain in a Shanghai prison awaiting trial on industrial
espionage and bribery charges.

BHP continues to push for a new index system and is finalising an iron
joint venture with Rio, itself wary after last year’s debacle.

“On average, the iron ore price of 2009 decreased by 42 per cent
compared to that in 2008,” Xu Xiangchun, director of Information
Department at market analysts Mysteel.com said.

Source: The Australian

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