Iron Ore Spot Prices to Bottom This Quarter, Goldman Sachs Says

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Tuesday, 05 May 2009

Cash prices for iron ore will bottom this quarter as demand from China rebounds, boosting forecast earnings for BHP Billiton Ltd. and Rio Tinto Group, Goldman Sachs JBWere Pty said. “We now believe that the current quarter will mark the bottom of the price cycle for spot iron ore,” Goldman Sachs JBWere analysts Malcolm Southwood and Paul Gray said in a May 1 report. Implied prices from Australia will average $52 a metric ton this quarter, from $71 last quarter, and rise to $53 in the following three months, the report said.
Producers in Australia, the world’s biggest exporter, will benefit from the rebound as the amount of ore sold at spot prices gains amid stalled contract price talks with steel mills. Increased spot sales may boost Rio earnings 4.1 percent in 2009 as imports displace higher-cost output in China, the biggest buyer, the report said.
Spot iron ore prices rose 2.7 percent to $60.31 in the week ended May 1, according to Metal Bulletin prices. The prices for ore from Australia averaged $168 a ton in the first quarter of 2008, the Goldman Sachs JBWere report said.
Imports of ore into China will rise by 40 million tons this year and Australian producers may supply 75 percent of the increased demand, the analysts said.

Source: Bloomberg