Global financial services provider Morgan Stanley has forecasted that world iron ore prices will fall at least 35 percent this year, despite market expectations of a 25 percent drop.
According to the bank, if miners want to keep their main client China consuming ore, they need to accept a fall of at least 35 percent this year.
In addition, Morgan Stanley said that Brazilian mining giant Companhia Vale do Rio Doce (Vale) and Australia's Rio Tinto are selling iron ore at a 20 percent discount on 2008 contracts. Also, Brazil's Companhia Siderurgica Nacional (CSN) and Australia's Fortescue Metals Group Ltd. (Fortescue) are giving 30 percent discounts in order to raise their market share. The bank pointed out that Australian iron ore miner BHP Billiton was selling large volumes on the spot market at 42 percent below contract prices.
Morgan Stanley stated that China's steel industry fundamentals were still weak, despite a surprising output rise in the first quarter of 2009. The bank continued to forecast high steel stocks in China and falling prices for flat steel.