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International Iron Ore Prices May Fall

Posted on: Wednesday, 17 May 2006, 06:07 CDT

By Lee Bloomquist, Duluth News-Tribune, Minn.

May 17--A decline in 2006 international iron ore prices may be on the horizon as a result of an agreement between the world's largest iron ore producer and a German steelmaker.

Companhia Vale do Rio Doce, a Brazilian iron ore producer, and steelmaker Thyssen Krupp Stahl AG, Germany's largest steel producer, have agreed to a 3 percent reduction in blast furnace pellet prices.

The agreement comes a year after international iron ore prices increased by 86.4 percent.

"That's a real surprise to me," Peter Kakela, a Michigan State University iron ore industry analyst, said of the price dip. "But it's a pretty big deal, and it could become the pattern for Asia as well. Once one company settles, the others fall into place pretty quickly."

A slight decrease in international prices won't have a significant impact on Northeastern Minnesota's six iron ore producers, Kakela said.

Iron ore pellets sell on the world market for about $70 a ton.

Pellets produced at company-owned operations such as U.S. Steel's Minntac Mine in Mountain Iron, Keewatin Taconite and Mittal Steel USA's Minorca Mine near Virginia, are sold to owners of the plants for about $40 a ton, Kakela said.

Minnesota taconite operations are projected to produce about 40 million tons of iron ore pellets in 2006.

All six of the plants -- located on the Iron Range -- are expected to run at capacity through the year.

"All indications are that demand continues to be fairly strong, and while they can adjust, that's what seems to be what is projected in the future," said Frank Ongaro Jr., president of the Iron Mining Association of Minnesota. "This is a just another piece of the global marketplace at work."

A modest price decline is likely to be viewed within the industry as a market adjustment after 2005's huge price increase.

"It could be a slowdown in total demand," Kakela said. "But it could also be a signal that the 86.4 percent increase last year was too high."

Companhia Vale do Rio Doce and Thyssen Krupp also agreed to a 19 percent increase in the price of iron ore lumps and fines.

International iron ore prices are generally set early each year in negotiations between the world's largest iron ore and steel producers.

While the negotiations establish a world benchmark, other factors such as domestic steel production and price indexes factor into U.S. iron ore pricing.

LEE BLOOMQUIST covers the Iron Range taconite industry. He can be reached weekdays at (800) 368-2506, (218) 744-2354 or by e-mail at leebloom@cpinternet.com.

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Copyright (c) 2006, Duluth News-Tribune, Minn.

Distributed by Knight Ridder/Tribune Business News.

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NYSE:RIO, NYSE:X,

Source: Duluth News-Tribune (Duluth, Minn.)

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