Iron ore revenue down despite price rise

Increased demand for iron ore in China has pushed the spot price to its highest level since 2008.

An increased demand for iron ore in China drove the spot price up to US$91 (A$112) per tonne on Friday, the highest rate since September 2008.

The figures were released by commodities analyst Metal Bulletin as part of their weekly report.

IBISWorld analyst Sam Ellis told MINING DAILY that the rapid pace of China’s development and industrialisation has continued to drive iron ore demand despite the economic conditions.

“Despite all the economic malaise going on around the world, it is important to remember that China is still growing strongly. We saw figures last week that China’s GDP closed in the year to June at 7.9%,” he said.

“This means they are still developing and industrialising and are therefore demanding a lot of steel and iron ore.

“The Chinese Government’s stimulus, which focused a lot on infrastructure, also drove the strong GDP figures and again boosted demand.”

In spite of this rise, Ellis said that industry revenues in iron ore mining are predicted to fall in 2009-10 by 22% to around $30 billion.

“This is primarily due to lower prices rather than lower volumes,” he said.

“We are expecting the volumes to increase fairly strongly over the next five years at an average of 8% per year.

“We are also expecting industry revenue to fall over the next two years. That would indicate contract prices are going to be lower in that period.”

Because China held out on the benchmark contract price negotiations earlier in the year, its mills will be the most affected by the price rise, according to Ellis.

“China stockpiled its iron ore this year while the negotiations were underway. Some say this was an attempt to boost their position,” he said.

“Stockpiling the iron would allow them to get by for a period of time after the negotiations expired without being locked into a contract.

“Japan, South Korea and Taiwan have already agreed on a benchmark price for the next year at the 33% discount.”

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