Iron ore and coking coal prices to fall globally [steel_n_ores]

Iron ore, coking coal prices to fall globally

15 Aug 2005, Monday

Consultancy firm Goldman Sachs JBWere (GSJ) has recently forecast
that iron ore and coking coal sold under term contracts will go on a
downward spiral, adding that a downturn in the global steel market
and increasing supplies will see prices decline from peak levels
reached this year. Global iron ore and coking coal prices are
expected to fall 10 per cent and 12 per cent, respectively.

According to GSJ, a 10 per cent decline in prices of iron ore fines
sold under contract over the Japanese 2006-07 was likely. The report
also said GSJ now expected the benchmark price for coking coal to be
$110 per tonne, 12 per cent below the current benchmark. The previous
forecast was for no change.

It also forecast that seaborne iron ore trade in 2005 will be at 641 mt, based on a rise in Chinese imports by 23 per cent to 255 mt and a
fall in trade with the rest of the world by 1.5 per cent to 386 mt.
It also estimated that Australia and Brazil would supply at least an
additional 15 mt each this year, leaving a shortfall of about 10 mt
that needs to come from other suppliers to balance the market.
Goldman Sachs said Indian exports to China rose by almost 40 per cent
during the first four months of this year but the recent lack of
activity in the spot market and decline in Indian spot prices suggest
a slowdown in Indian shipments as the year progresses. "Our base case
assumption is that the seaborne market will be closely balanced this
year but will tend towards modest oversupply in 2006 as capacity
expansions in Australia and Brazil reach fruition," it said. Goldman Sachs' analysis of iron ore capacity expansions implies a net
addition to export supply of just over 50 mt a year between 2005 and
2007 which slightly exceeds its demand growth forecasts.

The firm said the same demand issues apply to the coking coal market
but it believes the seaborne market for hard coking coal will remain
exceptionally tight for at least the next two years. Its revised
price forecasts imply an annual average price of $108/ t for the
three year period 2005-06 to 2007-08, which is 80 per cent above its
long term price assumption of $60 and more than double the 10 year
average price before this year's massive price rise.