Mining Weekly cited Mr Phil Newman CRU Strategies Consultants COO said that iron ore contract negotiations this year between the big three producers and key customers will likely end with prices about 25% lower than in 2008. For the following three years, prices may decline by a further 20%, but demand and prices will likely rebound strongly thereafter.
Mr Newman said that most of the declines in world iron ore demand would likely be outside of the biggest consumer, China. He added that "Although Chinese steel production will fall a little bit with respect to its demand for seaborne iron ore, we don"t see a huge change."
He added that an important factor to consider is that domestic supply in the country will likely be affected by lower spot prices and demand and a significant proportion of small scale iron ore mines in the country may either close or curtail operations, because they will no longer be economic. According to CRU data, in January, almost 60% of Chinese iron ore producers would have been receiving prices at or below cash cost for their ore.
Mr Newman said that as a result, Chinese iron ore production is expected to decline significantly over the next four to five years. This will mean that Chinese demand for seaborne imports will not change as much as might be expected, given the fall in steel production.
He said that "Our price forecast is about a 25% fall, certainly for the Brazilian contract maybe a little bit higher for the Australian contract. Last year, Rio Tinto and BHP Billiton were able to secure slightly higher prices than Vale because high freight and shipping costs made it much more expensive to ship ore to Asia from Vale"s Brazilian mines than their operations in Australia. He added that those freight issues have gone away now, the freight prices are significantly lower."
Some market watchers are predicting that 2009 contract prices for the steelmaking ingredient may slump back to 2007 levels which would imply a 40% drop year on year. According to reports, Chinese steel producers opened the latest round of negotiations with a demand for a 40% cut in prices.