FNArena News Alert: Vale Demands Iron Ore Price Rise Of 114%

This story features RIO TINTO LIMITED, and other companies. For more info SHARE ANALYSIS: RIO

By Rudi Filapek-Vandyck, Editor FNArena

The world's number one iron ore producer, Brazil's Vale, appears to have taken the lead in this year's contract price negotiations with customers in China and elsewhere. The implications could be very positive for iron ore producers in Australia with Brazilian newspaper Valor reporting Vale is demanding a price increase of 114%, plus quarterly re-pricing mechanisms.

As one would expect, the news is spreading rapidly around the globe as most stockbrokers and investment bankers currently have penciled in potential prices rises in the order of 60-80%, while hoping for a possible 90-100%.

Not one research report that has passed the desk of FNArena journalists this year has mentioned a potential price settlement of this magnitude.

Moreover, if the traditional iron ore pellet price premium would be restored this year, the price for iron ore pellets should go up by 125%.

For good measure, the Brazilian newspaper report is unconfirmed at this stage, but it is likely that amidst the present positive mood in global equity markets, investors will focus on the good news, even if it is nothing more than a newspaper report at this stage.

And with good reason: the boost to sales and profits for the likes of Rio Tinto ((RIO)), BHP Billiton ((BHP)), Fortescue Metals ((FMG)), Grange Resources ((GRR)) and Mount Gibson ((MGX)) would be enormous.

On the other hand, share prices for global steel manufacturers are likely to come under pressure as this should translate into margin pressure for the sector, even if price rises can be successfully implemented this year (it is quite unfathomable that steel prices could potentially rise by a similar magnitude).

Apart from the above mentioned companies, other ASX-listed iron ore related companies include (in no particular order):

Murchison Metals ((MMX)),

Atlas Iron ((AGO)),

Gindalbie Metals ((GBG)),

Sundance Resources ((SDL)),

Australasian Resources ((ARH)),

Brockman Resources ((BRM)),

Sphere Minerals ((SPH)),

BC Iron ((BCI)),

Flinders Mines ((FMS)),

Alkane Resources ((ALK)),

Territory Resources ((TTY)),

Strike Resources ((SRK)),

Admiralty Resources ((ADY)),

Western Plains Resources ((WPG)),

Indo Mines ((IDO)),

Carnavale Resources ((CAV)).

Click to view our Glossary of Financial Terms