Iron ore prices set for massive hike

Beijing: Chinese steel makers have been asked to agree to a 50 per cent increase in the price of contract iron ore, according to reports in official Chinese media. Baosteel Group, which is representing Chinese steel makers in talks with iron ore producers, has been asked by Rio Tinto and Vale SA to agree to the hike but is now awaiting a response from Japanese and Korean steel makers before arriving at a decision.

Being a pre-eminent importer, a Chinese nod to a price level becomes the international benchmark.

The world's three biggest iron ore producers, Vale, Rio and BHP Billiton Ltd, are set to wrest higher benchmark prices in 2010 from steel producers as production recovers globally.

An estimate issued 1 March by Nomura Holdings Inc said iron ore contract prices were likely to rise 70 per cent in 2010 as ore producers try and bring spot prices closer to market rates. This is an upward revision of a previous prediction from Nomura of increases of 40-50 percent for iron-ore prices in 2010.

The fact that spot market prices of ore delivered to China, the world's largest buyer, rose to their highest levels in more than a year on Tuesday lends credence to predictions of a hefty rise in contract ore prices for 2010.

In their report, Nomura analysts point out that 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.''