Reuters reported that Iron ore prices are set to fall in 2009 after 6 years of price hikes as deteriorating demand triggers severe production cuts in the steel industry.
Negotiations between miners and steelmakers to set a benchmark price for 2009/2010 iron ore supply contracts are expected to be fierce, acrimonious and lengthy, as is often the case.
Analysts said that miners are expected to try to limit a steep fall in the contract price by cutting iron ore output to help balance the market. But with demand hit so hard in key steel consuming industries such as construction and automotive, steelmakers are likely to have the upper hand. It said that iron ore miners have slashed production to match weakening demand, but not enough to prevent a glut of material.
Ms Christina Lee analyst of Macquarie said that "After six consecutive yearly rises totaling almost 400%, iron ore prices are certain to fall due to major collapse in demand."
Mr Daniel Brebner global head of commodities at UBS said that "Even with a 40 % correction in contract price it will be second highest iron ore price in history and this is one of the worst recessions we"ve witnessed in 40 years."
UBS" Mr Brebner said that "You have not seen enough cutbacks on the iron ore supply side. We have seen significant cutbacks on steel that should create a significant surplus on iron ore and thus pressure on price."
As per report, the fall will mark an end to a bullish run for miners BHP Billiton, Rio Tinto and Vale which last year secured hefty prices hikes, some of almost 100%. The trio control about Q3 of the 800 million tonne annual market in seaborne iron ore.