The world's three largest iron ore producers, Companhia Vale do Rio Doce (CVRD), Rio Tinto and BHP Billiton, will soon start their negotiations for the 2008 iron ore prices with major steel producers such as ArcelorMittal and Baosteel. Although the negotiations have not yet started, there is already a lot of market chatter regarding the tight international iron ore supply situation.
Iron ore prices increased by around 71.5 percent in 2005, 19 percent in 2006, and 9.5 percent in 2007. Iron ore producers indicate that supply continues to be tight. In addition, some investment banks expect that the iron ore pricing trend will remain up for 2008 due to the strong demand from China and the lower-than-expected supplies in Brazil and Australia.
Both Merrill Lynch and Morgan Stanley forecast that iron ore prices will increase by 30 percent next year, while there is talk that Rio Tinto and BHP Billiton are pushing for a 50 percent price increase.
Merrill Lynch analysts say that China currently consumes 45 percent of global seaborne iron ore, and that China will drive 80 percent of the iron ore demand growth in 2007. They predict that iron ore supply and demand will balance in 2009 and 2010.