Iron ore prices to soften in 2012

 Demand for iron ore is set to soften this year on the back of slower steelmaking growth in China, according to London-based price watcher the Steel Index.

 The Australian reported today average spot prices for iron ore would range from $US150 to $US160 a ton in 2012, down from the $US168 average in 2011.

 Prices are also expected to be more volatile, building on the slowdown in China that started late last year.

 Iron ore giants Vale, BHP Billiton, and Rio Tinto are already starting to adjust to the market by changing their contracts to closer reflect prices on the spot market.

 The changes were driven primarily by Chinese steel mills after spot prices started to become cheaper than contract sales.

 Despite the softening iron ore prices are still at historically high levels, and both BHP Billiton and Rio Tinto said last quarter that they expected Chinese demand to remain strong.

 In releasing the company’s third quarter results late last year Rio Tinto chief executive Tom Albanese said the commodities market remained strong.

"Whilst we are mindful of current market volatility, the fundementals are holding up well, particularly for bulk traded commodities," he said.

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