Aug. 28 (Bloomberg) -- Iron ore prices may gain 35 percent next year as producers led by Cia. Vale do Rio Doce, the world's biggest exporter of the steelmaking ingredient, seek to benefit from surging demand in China, RBC Capital Markets said.

Rising consumption and limited supplies may continue for two years, RBC analysts Chris Lancaster and Michael Chandler said in a report. The brokerage had forecast a 10 percent gain.

China overtook Japan as the largest buyer of iron ore in 2003 because of increased production of cars, buildings and appliances. Prices have risen for the past five years to a record helping Brazil's Vale, London-based Rio Tinto Group and Melbourne-based BHP Billiton Ltd. boost profits.

``Demand, particularly from China, has continued unabated, while supply from almost every producer remains constrained,'' the RBC analysts said in the report published yesterday.

The price of Hamersley fines ore, produced by Rio Tinto in its Australian mine, rose 9.5 percent to $51.47 a ton this year. A gain of 35 percent would take it to $69.48 a ton next year. Prices are determined by the content of iron in the ore. Reference prices are usually taken from fines ore as it represents 60 percent of the traded market.

China, the world's largest producer of steel, may raise output of the alloy by 14 percent this year, the China Iron and Steel Association said July 30. The nation's imports of iron ore jumped 19 percent in the first seven months of this year as steelmakers increased production to meet demand, according to data from the Beijing-based Customs General Administration.

RBC's increased forecast follows similar revisions by brokerages in the past three months. UBS AG in July raised its iron ore price forecasts to a 25 percent gain in 2008, up from 10 percent. Goldman Sachs JBWere Pty on Aug. 24 raised its forecasts to a 30 percent gain, from 9 percent.

Credit Suisse Group in June raised its forecast to a 25 percent gain, which it reiterated on Aug. 21. Executives from 16 Chinese steelmakers met with Vale recently to discuss supply, Credit Suisse's analysts Roger Downey and Ivan Fadel said in the August report.

To contact the reporter on this story: Tan Hwee Ann in Melbourne at hatan@bloomberg.net

Last Updated: August 27, 2007 23:52 EDT