Jan Steenkamp, Senior manager of ARM ferro-alloys division
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Iron ore miners cautious on price hike
David McKay
Posted: Wed, 03 Jan 2007

[miningmx.com] -- TWO South African iron ore producers said it was not certain they would duplicate the 9.5% price increase negotiated between Baosteel, China’s largest steel producer, and Companhia Vale do Rio Doce (CVRD) and Rio Tinto in December.

“We might get slightly less,” said Jan Steenkamp who heads African Rainbow Minerals’ (ARM’s) iron ore business division. “The Chinese are bigger buyers of fine iron ore product whereas our product is lumpy,” he said. “We’re a price taker.”

Ras (Erasmus) Myburgh, CEO of the newly listed Kumba Iron Ore (KIO), said the company’s price plans had not been finalised. “Our prices normally follow the cycle. But it doesn’t mean we’ll settle at a 9.5% annual price increase,” he said.

These comments appear conservative set against expectations of another buoyant year for iron ore exports.

Rio Tinto’s Hamersley Iron said on December 22 that iron ore deliveries commencing April 1 would be subject to a 9.5% increase in price. “The agreement reflects the continuing strong demand in the market for Hamersley’s products,” said Sam Walsh, CEO of Rio Tinto’s Iron Ore Group.

CVRD, the world’s largest iron ore producer, unveiled a similar agreement hours earlier. The settlements were notable for the early conclusion in contrast to the protracted contract negotiations of 2006. “What we’re seeing is that end-producers (steel mills) were not going to get a 0% price increase,” said Steenkamp.

“I think there was evidence that there should be an increase,” said Myburgh accounting for the early conclusion to contract negotiations between iron ore producers and steel mills. “It looks as though they realised there shouldn’t be long delays.”

The 9.5% price increase, effective from the start of the fiscal year (April 2007), is the lowest increase in four years following a 19% increase for the 2006 fiscal year, a 71.5% average increase in 2005, and a 18.6% increase in 2004.

There has been a 10% compound annual growth rate in iron ore volumes worldwide increasing to an estimated 700,000 tons in 2006 from 484,000 tons in 2002.
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This is on the back of increased steel production which totalled about 1.1 billion tons in 2005. Steenkamp estimated that steel production would be between 1.2 and 1.4 billion tons this year. “There is still a shortage of supply,” he said commenting on iron ore production.

“Iron ore prices should now rise by around 10% for other iron ore contracts around the world. This should lead to a market rise in profitability for other iron ore producers,” said John Meyer, an analyst for London-based Numis Securities.

“Steel makers in China appear to have settled early in order to secure supplies ahead of other consumers suggesting that we might look forward to another strong year of iron ore and steel demand growth within China,” Meyer said.