MGX 4.23% 90.5¢ mount gibson iron limited

china tipped to fuel iron ore price lift

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    By Michael Weir



    WA'S iron ore producers are poised to enjoy another big price jump next year with China's "ravenous appetite" for steel powering a global iron ore boom, according to a new report.

    AME Mineral Economics said the skyrocketing demand had generated one of the tightest international iron ore markets in history.

    It said global iron ore consumption would increase more than 6 per cent this year and would continue to grow strongly for the next five years.

    "Producers are scrambling to expand capacity, consumers are racing to secure supply and the industry is attracting new players like moths to a candle flame," the report said.

    "The 9 per cent price hike won by producers this year will be matched by similar increases in 2004.

    "Given the tight market conditions expected to prevail through next year, contract prices for premium Australian fines will return to levels not seen since 1991 (and) AME expects further incremental increases to follow in 2005."

    News of higher prices will comes as welcome relief to Australian producers, which despite enjoying record production levels have seen windfall gains eroded by the strengthening Australian dollar.

    All WA iron ore producers are cranking up production levels in a bid to win a slice of the Chinese demand.

    Iron ore majors Rio Tinto and BHP Billiton both have major expansions under way at their various Pilbara mines.

    BHP Billiton is fast-tracking a $1 billion expansion of its Pilbara mines, including bringing forward more than $110 million in spending, mostly on its 450km railway and port facilities at Port Hedland, in a bid to lift its Pilbara output 25 per cent to 100 million tonnes a year by June.

    Rio is considering expanding the Cape Lambert port to a capacity of 69 million tonnes a year by 2006, from around 55 million tonnes, and is looking at expanding its Hamersley Iron operations to 114 million tonnes by 2007 from 74 million tonnes this year.

    Portman is spending $20 million developing new northern tenement mining areas at Windarling Range and Mt Jackson, about 100km north of its current operations at Southern Cross.

    Mt Gibson Iron has started mining operations at its Tallering Peak operations, Andrew Forrest's Fortescue Metals Group wants to build a $1.5 billion independent port and rail network to unlock a swag of stranded Pilbara iron ore deposits, and Gina Rinehart's Hancock Group is still trying to develop the $1.5 billion Hope Downs project.

    AME said the new capacity being brought on would help ease market tightness over the next couple of years, or at least prevent the market from tightening further.

    "But AME's analysis suggests that only after 2006 will the pressure on supply be relieved, as long as the major producers in Australia and Brazil implement at least a substantial portion of their development plans, and provided some other new capacity comes on stream," it said.

    AME warns, however, that the rosy outlook was contingent on China sustaining a frenetic pace of industrial and infrastructure development.

    "If China falters or plateaus - always a risk with such high growth rates - the pressure on iron supply will quickly evaporate and producers will have to slow or defer their ambitious expansion plans," it said.

    "But industry consolidation, which has led to the top three exporters supplying around three quarters of seaborne trade, provides considerable flexibility for these major players to adjust output and help stabilise the market."
 
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