Geraçao Futuro brokerage's mining and steel analyst Mr Rafael Weber told BNamericas that iron ore prices are forecast to increase by approximately 22% in the first half of the year, with China continuing to be the main importer of the mineral and driver of global demand.
Mr Weber said that Brazilian miner Vale has already set a price hike of 7% to 8% for the first quarter. Additionally, if spot prices maintain their current levels through February, prices will increase by a further 12 to 13% in Q2.
Mr Weber added that "For the second half of 2011 it's still premature to make forecasts on new adjustments. That will depend on what spot prices are in the second quarter.”
Vale will also benefit from lower Indian iron ore exports. India's share of iron ore exports to China has fallen from some 15% to less than 9%, according to the analyst. He explained that "That measure has been favorable to Vale and Australian miners as well.”
According to Mr Weber, another positive factor for iron ore miners is the tight supply of the mineral and increasing demand globally. The scenario is likely to persist over the next two years, as significant capacity expansions are not expected for the period.
In 2010, Vale and multinational resource groups Rio Tinto and BHP Billiton adopted a quarterly pricing system for iron ore, putting an end to the annual contracts.
Recent international press reports said that BHP could be moving to monthly adjustments, which would put an end to the mismatches between quarterly contracts and spot prices.
Mr Weber said that "At the same time, the European steel association has been talking about the need to return to the old benchmark system.”
Steelmakers globally have been heavily impacted by the change in the iron ore pricing policy, which affected their cost structures. He added that nevertheless, the quarterly contracts so far have been the most coherent system, the analyst said. The current policy allows quarterly prices to reflect the real relation between supply and demand.