Iron Ore Prices in 2009...

2009: Another Year Of Record Profits for Iron Ore Miners?
Chinese Steel producers have to conclude price negotiations with Australian
Iron Ore miners by June 30th. The Australians are asking for a 85 per cent
increase in ore price, over the 71 per cent price increase they got in 2008.

If such price increases are accepted by the Chinese, then Indian miners Sesa
Goa, NMDC, Orissa Mining Corp, Sandur Manganese and junior minors Electrosteel,
Prakash and Adhunik will be benefitted immensely.


After years of commodities climbing in price, everyone wants to own them.
That's what makes the story of the Pilbara so amazing...

The Pilbara region of western Australia looks a lot like stretches of Utah...
burnt oranges and reds highlighted by spinifex, a bushy grass unique to
Australia. But the special thing about this place from an investor's perspective
is this: The

Pilbara is home to the world's single largest deposit of high-grade iron
ore... more than 34,000 million tonnes of it. It's enough to supply the entire
world, at current rates of demand, for the next 300 years... and it's enough to
turn the Pilbara into ground zero in the world's commodity boom.

For years, big mining companies like BHP and Rio Tinto had a lock on the
Pilbara's richest deposits. But not all of them.

The slightly lower-grade ores elsewhere in the Pilbara, or the ones that were
simply too far away from BHP's and Rio's existing rail and port networks, were
left untouched. Now, though, with contract iron ore prices up 320% since 2003
(by comparison, gold is up "just" 147%), it's a whole different story in the
Pilbara.

These days we focus a lot on the importance of energy to our comfortable way
of life. But the industrial skeleton on which the infrastructure of a modern
economy rests is made of iron and steel. Nations that have it become great.
Nations that don't have it will do just about anything to get it.

Right now, China is doing anything to get it.

China has gone from being a net importer of steel to a net exporter in the
last six years. According to the China Iron and Steel Association, China
produced 151 million tonnes of steel in 2001. This year, China is on track to
produce nearly 540 million tonnes of steel, a 205% increase in six years. China
is now the world's largest steel producer... with an output over three times
larger than No. 2, Japan.

To produce steel, you need iron ore. Australia is home to 16% of the world's
iron ore reserves.

China imported 115 million tonnes of Australian iron ore in 2002, 148 million
in 2003, and 208 million in 2004. It imported more than 240 million tonnes in
2005, 326 million in 2006, 384 million in 2007, and is on pace to import nearly
453 million tonnes this year. Those imports amount to more than 42% of global
iron ore exports.

China needs all that ore to make all that steel because its economy is still
rocketing along at 11% growth, according to the latest figures. You can never
quite trust government figures, of course. It could be more. It could be less.
But either way, it's a lot... and it's making Australian miners a fortune right
now.

As we enter 2008, Australia is exporting iron ore, coal, gold, and other
commodities to the tune of A$117 billion in earnings, according to the
Australian Bureau of Agriculture and Resource Economics (ABARE). ABARE projects
export earnings of A$20.2 billion for iron ore producers alone.

Just how big those earnings will actually be depends on the new contract price
for iron ore in 2008. Right now, there isn't a new contract price between Aussie
ore companies and Chinese steel makers. In late February, China's biggest
producer, Baosteel, agreed to a 71% increase with Brazilian ore giant Vale.

But Chinese steel producers are stubbornly holding out against the even bigger
increase Aussie producers are asking for. The Australians want at least an 85%
increase and want to include a "freight premium" that reflects the lower cost of
shipping Aussie ore to China.

The clock is ticking... An 85% increase over last year's contract price of
$83.40 a tonne would put the 2008 price at $154.29, about 14% higher than the
$132.20 Baosteel agreed to pay Vale. If no agreement is reached by the end of
June, Aussie firms are free to sell iron ore in the spot market, where Indian
ore has traded between $120 and $150 over the last six months.

Rohit
9868245473