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Wednesday, April 08, 2009

Iron ore price negotiation - UBS sees 40% cut

Tuesday, 07 Apr 2009

UBS Pactual in a report said that Global iron ore prices will likely fall by 40% in 2009. However, the UBS report acknowledges the market consensus is a lower drop in prices of between 25% to 30%.
According to the report Brazilian mining giant Companhia Vale do Rio Doce, iron ore is only expected to fall by 35%. This is because Vale's iron ore is of a higher quality than that of rival Australian suppliers.
UBS analysts said that Vale's Chinese volumes would likely increase as seaborne players capture market share from high cost low quality domestic ore.
UBS said that Brazilian trade data in the Q1 indicate price is being discounted. It said that "Iron ore companies are selling ore on a combination of 2008 & 2009 prices, which should have a negative impact on results once settlement is reached.”
It believed there may not be a benchmark price set this year as iron ore companies are refusing to take the lead on negotiations and are resorting to spot pricing.
In recent years, Vale has set the benchmark price in April with Chinese steel mills and other ore miners have followed suit. However, last year, Vale settled a price only for rival Australian miners to separately negotiate an even better deal for their ores. As a result, Vale said that it would let the Australians settle the price first this year.
UBS said that Brazilian iron ore exports in March were 22.1 million tonnes up 27% MoM and 53% YoY. The average price in March for the ore was 5% above February, although the Q1 price was 20% lower than the Q4.
It said that Vale's Q1 export volumes should be flat compared to the previous quarter but should pick up and reach at least 200 million tonnes in the year.
(Sourced from Dow Jones)