Iron Ore May Fall as China Seeks Lower Price Amid Contract Talks

Prices of iron ore for immediate delivery may fall further as Chinese steelmakers seek lower spot prices during quarterly contract negotiations with suppliers including BHP Billiton Ltd. (BHP), Mine Life Pty. said.

China will throw its weight around” in the spot iron ore market this month, Gavin Wendt, the founder and senior resource analyst at Sydney-based Mine Life, said by phone today. “It has the whip-hand because if it withdraws from the market, that will have a big negative impact on prices. China will use that to its advantage, with the contract negotiations under way.”

Prices of iron ore for immediate delivery tumbled 31 percent in October from a month earlier in the biggest loss since at least 2008. Vale SA (VALE3), the world’s largest iron ore producer, said Oct. 27 some customers are seeking a switch to spot pricing from a quarterly contract system.

Citigroup Inc. today cut its spot price estimates for the steelmaking ingredient in the fourth quarter and 2012 by 7 percent on a deteriorating global economy and slowing steelmaking growth in China.

Baoshan Iron & Steel Co. (600019) have asked iron ore producers, including Vale, BHP and Rio Tinto Group, to reduce prices by 23 percent in the first quarter, Economic Daily News reported today, without saying where it got the information.

“Prices will be on the conservative side for the bulk of next year,” according to Wendt, saying they may fall to $120 a metric ton in 2012. “Steel mills are seeing output dropping.”

Australian mid-tier iron ore producer Atlas Iron Ltd. (AGO) had its target price cut 7 percent to A$4 a share by Citigroup, while rival Fortescue Metals Group Ltd. was rated a buy with at a target at A$6.50. Atlas fell 1.9 percent to A$3.03 in Sydney trading. Fortescue (FMG) dropped 0.6 percent to A$4.82.

Building Inventories

Iron ore for immediate delivery to the Chinese port of Tianjin rose 0.7 percent yesterday to $139.80 a metric ton, the highest since Nov. 25, The Steel Index Ltd. data show.

China usually begins restocking of bulk commodities in November before ramping up production in the New Year, UBS AG said in a Nov. 22 report.

The Chinese economy grew at the slowest pace since 2009 in the third quarter on weaker export demand and monetary tightening. Angang Steel Co. and smaller producers in Hebei province shut plants for maintenance as prices of the alloy used in cars and construction declined.

To contact the reporter on this story: Jason Scott in Melbourne at jscott14@bloomberg.net

To contact the editors responsible for this story: James Poole at jpoole4@bloomberg.net.

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