Investment bank, Nomura Holdings, has predicted a rise of 70 per cent in the iron ore contract price for 2010 as producers seek agreements closer to current spot prices. The bank had previously a rise of 50 per cent. The firm’s London-based analysts, Paul Cliff and Gavin Wood, also predicted that within the next two years contract prices for both iron ore and coking coal are likely to double.
“Recent comments from both Rio Tinto and Vale suggest that contract prices must be settled much closer to spot prices or the benchmark pricing system will not survive,” Mr Cliff and Mr Wood wrote. “The iron ore market remains one of the only major commodity markets with such a large discrepancy between spot and annual contract prices and we think convergence is inevitable.”
Predictions for the iron ore benchmark price, which is agreed between Chinese steelmakers and the world’s largest iron ore miners, BHP Billiton, Rio Tinto and Vale, have varied between 20 per cent and 90 per cent. Japanese and Korean steelmakers have already agreed a 35 per cent rise, but with spot prices advancing there are suggestions that the benchmark price with China will see an even greater increase.
Meanwhile Australian analysts at Goldman Sachs JBWere Pty said yesterday that the big three miners were missing out on $20 billion worth of sales by not selling Australian-mined ore at cash prices. “We cannot understand why any producer would not look to urgently and decisively aim to receive the market price,” Goldman Sachs JBWere analysts led by Neil Goodwill said in a report yesterday. “Neither company is receiving anywhere near market prices for its iron ore.”
Goldman based its calculations on a $50 a tonne differential between contract prices and spot prices on 400 million tonnes produced each year in Australia.
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