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Mining and Forestry
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UPDATE: Brazil Miner CVRD Says Iron Ore Market ImbalancedUPDATE: Brazil Miner CVRD Says Iron Ore Market Imbalanced
Last update: 10/26/2007 2:05:33 PM
(Updates with details)
RIO DE JANEIRO (Dow Jones)--The global iron ore market remains imbalanced as demand for the key steelmaking ingredient outstrips supply, pushing spot market prices much higher than current contract prices, the CFO of Brazilian mining giant Companhia Vale do Rio Doce (RIO) said Friday.
"The price of Brazilian ore, including freight, is 25% less than the spot price of Chinese and Indian ore, both of which are lower quality than ours," CVRD finance chief Fabio Barbosa said. Barbosa made the comments during a conference call with analysts.
According to CVRD, the spot price for iron ore in China was at $172 per metric ton in September, while the Indian spot price was $180 per ton.
The sharp difference between spot and contract prices may set the stage for cantankerous discussions between miners and steelmakers. Analysts expect iron ore prices to rise between 25% and 35% in 2008, with some forecasts of an upward adjustment of 50%.
While global miners and steelmakers had been expected to begin talks about the 2008 benchmark price for iron ore earlier this month, Barbosa said that negotiations had not yet started. Price talks are expected to start in November, Barbosa said.
The executive said that the benchmark pricing system was the most accurate way for miners and steelmakers to agree to a fair price.
"It allows us to invest as we do," Barbosa added. CVRD plans $59 billion in capital expenditures over the next five years to boost its iron ore output to 450 million metric tons, up from current production of 300 million tons.
Each year, iron ore miners and steelmakers hammer out a price per metric ton that covers the Japanese fiscal year. The first deal between CVRD, which has led price talks in recent years, and a major steelmaker is used to set the benchmark for subsequent price contracts between the two industries.
In December, CVRD agreed to a 9.5% increase to iron ore fines with China's Baosteel that set the benchmark for 2007 prices. That was on top of an 18.6% rise in 2006 and a stunning 71.5% surge in 2005.
Late Thursday, CVRD reported third-quarter net profit of 4.66 billion Brazilian reals ($2.6 billion), up from BRL3.97 billion in the same quarter a year ago.
CVRD is the world's largest producer and exporter of iron ore and iron pellets. The company is also the second-largest producer of nickel, a key raw material in stainless steel.
The miner's locally traded shares soared 4.4% to BRL52.35 in afternoon trade on the Sao Paulo Stock Exchange, or Bovespa. In New York, where CVRD's American depositary receipts trade, the shares were 5.6% higher at $35.36.
-By Jeff Fick, Dow Jones Newswires; 55-21-3288-5011; jeff.fick@dowjones.com
(END) Dow Jones Newswires
October 26, 2007 14:05 ET (18:05 GMT)
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