Andrew Forrest's Fortescue Metals Group was the top gainer in the resources sector yesterday and in the ASX 200 index.
The Pilbara iron ore miner finished the day 13 per cent higher, hitting $5.20 -- its highest price since October 2008. IG Markets research analyst Ben Potter said Fortescue had broken out of a four-month long consolidation zone on very strong volumes, as investors became more positive about future increases in iron ore prices.
The major producers agreed to a 33 per cent discount on annual contracts for Japanese and Korean steel mills last year but China refused to accept the offer, holding out for a deeper cut.
But the China Iron and Steel Association's push for the deeper discount failed and no annual contract was settled for Chinese steel mills last year.
An increase of up to 30 per cent is predicted by analysts for this year's contracts and while Japanese and European steel mills are expected to settle an annual benchmark, negotiations with China are again tipped to be strained.
"We could have a situation where there are no substantial negotiations and nothing happens," former BHP Billiton China chief executive Clinton Dines told The Australian yesterday.
"The benchmark system is dead. It is the most monstrous waste of time you have ever seen."
China is said to be pushing for a lower price for the economic powerhouse because it consumes about 70 per cent of the world's higher quality seaborne iron ore.
"It is easy to get bogged in the slanging match about the relative effect of industry concentration in the iron ore sector but the same three major iron ore suppliers held roughly the same degree of market share in the late 1990s, when iron ore prices were driven down to historical lows by the same steelmakers who complain about pricing power now," Mr Dines said.
"Where was the iron ore supplier `pricing power' then? And why didn't they use it?
"The only thing that has really changed in the last 10 years is the supply/demand balance," Mr Dines said.
Major miners, BHP Billiton and Rio Tinto rose strongly, as did second tier iron ore producers and emerging players.
BHP jumped 54c to $43.82 and Rio added $2.23 to $78.58.
Atlas Iron ended the day 7.85 per cent higher, Mount Gibson Iron Ore jumped 5.5 per cent and the fast-emerging Brockman Resources added 4.45 per cent.
Mr Potter added that materials top stocks for 2010 were generating a lot of interest, with the outlook improving for base metal prices, especially for copper and iron ore.
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