Commodity Blog

Archive for February 13th, 2008

Fortescue Metals Group Ltd., building a A$2.7 billion ($2.4 billion) iron-ore project in Australia, said prices of the steelmaking material may rise as much as 50 percent from April because of higher demand.
“China and India are booming and demand from other countries in Asia is growing,” Russell Scrimshaw, executive director, said in an interview in Mumbai yesterday. “There is strong upward pressure.”
Rising demand from China, the world’s largest steel user and Fortescue’s largest customer, pushed iron-ore prices higher for the past five years. Citigroup Inc. said Feb. 6 that contract prices may rise 60 percent from April.
Fortescue, which plans to ship its first ore to China in May, has secured long-term sales agreements with 35 Chinese steelmakers to sell 55 million metric tons of iron ore annually for a minimum of 10 years, Scrimshaw said.
Cia. Vale do Rio Doce, Rio Tinto Group and BHP Billiton Ltd., which account for three quarters of global iron-ore trade, in November began talks to set benchmark contract prices for 2008 with global steelmakers.

Commodity prices may shatter recent records and hit fresh peaks as buoyant demand for metals is little affected by any downturn in the United States, mining group Rio Tinto (RIO.AX) (RIO.L) said on Wednesday.
“Looking forward, it is entirely possible that some commodity prices have yet to reach their cyclical peaks,” Rio’s Chief Economist Vivek Tulpule said in a statement released along with the firm’s full-year results.
Many investors are cautious about the resources sector, concerned that commodity prices will stagnate or fall due to a possible recession in the United States and more supply from new mines coming on stream.
But Rio believes that strong demand from China and other developing nations will offset weakness in Western economies, Tulpule said.
“It is important to remain mindful of macro-economic risks relating to OECD growth,” he said.
“However, it is also important not to exaggerate these risks as our modelling suggests that they should not have a significant impact on the developing economies that have been the growth engines of commodity demand.”
Chinese economic growth is expected to remain strong at around 9–10 percent even amid a sharp U.S. recession, he said.
Global aluminium consumption rose last year at its fastest rate in recent history while higher costs and a stronger currency has boost marginal costs of production in China.
In copper, constrained supply conditions and above-average demand growth in 2008 mean that prices should hold well above trend levels. Growth in iron ore supplies from high-cost producers are expected to slow this year while steel output is seen growing strongly.
“In this environment of strong demand growth and constrained supply, the iron ore markets can be expected to remain and perhaps become increasingly tight,” Rio said.
Rio has rejected a sweetened but hostile takeover offer worth $147 billion from rival BHP Billiton.