Iron Prices Likely To Rise On High Chinese Demand -- Three Companies To Watch (BHP, RIO, RTP)

 |  Includes: BHP, RIO, VALE
by: Jim Letourneau

One of the tangible items that I brought back from the PDAC Convention in Toronto was a little vial of iron filings from one of the booths. There are only a handful of public iron ore companies and it looks like its worth taking a close look at them. This article indicates prices are likely to rise:

Iron-ore contract price negotiations have heated up this week, with rumours that the Chinese government has issued an unofficial directive to cap the prices paid by domestic steel makers.

The world’s biggest iron-ore producers are BHP Billiton [NYSE:BHP; LSE:BLT], Companhia Vale do Rio Doce (CVRD) [NYSE:RIO] and Rio Tinto [NYSE:RTP; LSE:RIO]. Iron ore is a major export earner for Australia and a major export earner for South Africa, too, accounting for about 10%, or R3.4 billion ($508.8 million), of base minerals exports in 2004...

Annual price increases for iron-ore supply contracts take effect from April 1 each year. Last year the price rose 71.5% and the resulting squeeze on steel makers’ margins, and a predicted slowdown in Chinese steel manufacture, was expected to make price negotiations hard this year.

Suppliers have been lobbying for another price increase, while steel makers have pushed for a decrease. The China Iron and Steel Industry Association forecast recently that growth in China’s production of crude steel would slow to 10% from 24.6% last year.

But Brazil’s CVRD said at a conference this week that Chinese demand for iron ore in January suggested the country’s demand would rise 20% this year.

Last year, China bought 43% of global iron-ore shipments. Goldman Sachs said in a note to clients that China’s share of world shipments this year was expected to be 45%.