Australis's coal and iron ore miners are set for another multi-billion-dollar bonanza from China this year with spot prices 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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