Commodities | Dec 11 2009
By Chris Shaw
While contract prices for iron ore in 2010 have not yet been settled, steel industry consultant MEPS takes the view any agreements are likely to be at a figure close to 20% higher than was agreed upon by many Asian and European steel mills for 2009 contracts.
There are several reasons for this view, MEPS noting mining companies want to claw back some of the price concessions made for the current contracts because demand this year has been higher than expected when the contracts were negotiated.
What also supports this expectation is spot iron ore prices are currently above 2009 contract price levels thanks to strong real demand, leading to suggestions many mining companies want to move to spot prices for all sales. To counter this, MEPS suggests the steel mills may have to agree to large price increases this year if they want to maintain the contract price system.
On MEPS’s estimates world iron production in 2010 will be a new record, exceeding the previous record achieved in 2007 by as much as 3.5%. This stronger iron ore output matches with better than expected steel demand as MEPS notes early this year many market commentators were forecasting a fall in steel demand of between 12-15%, while actual numbers for the year suggest the outcome will be more like a decline of about 8.5%.
Even more importantly, MEPS notes steel making via the integrated iron making approach has taken a larger share of supply, with iron production from blast furnace and DRI processes set to register a decline of just 5% this year. This shows real demand for iron ore through 2009 has been stronger than originally expected when current contracts were negotiated and so supporting expectations of solid contract price increases for 2010.
MEPS notes negotiations for new iron ore contract prices begin this month.
