Steel makers may be forced to accept a near-record increase in the price of iron ore because Chinese demand is outpacing supply and spot prices have surged, analysts said.

 

Iron ore sold under long-term supply contracts probably will rise 45 percent to 80 percent once steel makers and mining companies conclude annual negotiations for 2008, according to four analysts surveyed by Bloomberg News. The biggest gain ever was 71.5 percent in 2005.

 

Cia. Vale do Rio Doce, BHP Billiton Ltd and Rio Tinto Group, the world's three biggest iron-ore producers, are seeking to raise prices for a sixth straight year. The companies may be pushing for a bigger increase after spot prices rose in January to almost twice the 2007 contract price, said Rogerio Zarpao, a steel analyst at Unibanco.

 

"Opening the negotiations at 100 percent would not be absurd, but prices are more likely to close at 70 to 80 percent," Roger Downey, director of equity research for Credit Suisse in Sao Paulo, said yesterday. Credit Suisse on January 17 raised its official forecast to 55 percent from an estimate late last year of 35 percent.

 

Citigroup Global Markets last week doubled its price rise forecast to 60 percent from 30 percent after Australian producers diverted more iron ore to the spot market.

 

(Shanghai Daily February 13, 2008)