Toledo - Cashflow from the world's 3rd largest Nickel Resource

Looks like a 10% rise in steel prices next year (at the top end of analyst expectations). Hopefully, this wont reduce demand for steel and hence nickel next year. Chinese steel companies seem to be taking prominence and are certainly more important than previous years.

China Steelmakers Agree to Ore Deal; Likely Benchmark
By Paul Glader and Jeff Fick
22 December 2006
The Wall Street Journal

An agreement struck between Brazilian mining giant Cia. Vale do Rio Doce and China's Shanghai Baosteel Group Corp. may set a benchmark that could pressure the bottom lines of some steelmakers and influence the price of steel.

If the terms on their agreement over iron-ore prices take hold, the agreement could further bolster China's position in the market for important raw materials. Chinese demand already has pushed up iron-ore prices in recent years, in much the same way it has influenced the prices of oil and natural gas.

The cost of iron ore, an important steelmaking ingredient, can affect everything from the price of cars and washing machines to the cost of building bridges and skyscrapers. The 9.5% increase unveiled between the two companies is smaller than those of recent years but still could press steelmakers next year, as steel prices have started to slide in many markets.

Baosteel, one of the largest steel makers in China by output and sales, acted as lead negotiator for the entire Chinese steel industry. The 9.5% increase for ore shipped from Brazil to China starting in May 2007 lifts the price of iron-ore fines to about $44.47 per metric ton. In the third quarter of this year, CVRD sold iron ore for an average price of $40.61 per metric ton, not including shipping costs. China expects to import about 354 million metric tons of iron ore in 2007, up 11% from 2006.

"We weren't expecting to have it done that quick," said Fatima Cristina, a spokeswoman for CVRD. Baosteel couldn't be reached for comment.

Many steelmakers have argued iron-ore demand had reached an apex. How they may be affected depends on steel prices in their markets and their dependence on iron-ore imports. Mittal Steel Co. of Luxembourg, among others, continues buying and developing its own mining assets and iron-ore reserves.

Ms. Cristina noted that the agreement covers only one type of iron ore, iron-ore fines, and not iron-ore pellets, another kind that can sometimes vary in price from fines. The next step in negotiations could be to either settle a pellet price with China or to settle agreements with steelmakers in Japan or Europe that are similar to the agreement with Baosteel.

CVRD is the world's largest exporter of iron ore by volume. The company and counterparts BHP Billiton Ltd. of Australia and Rio Tinto PLC, with headquarters in London, control 70% of the seaborne iron-ore market. Representatives of BHP Billiton and Rio Tinto declined to comment on whether the contract sets a benchmark price.

Many observers, however, say they believe it does because it is the first deal on 2007 price increases and is between two major companies.

"Every other time, whoever has set it, the rest have followed," said Albert Minassian, a metals and mining analyst at J.P. Morgan Securities in London. "It is the unwritten rule. It would take a lot for someone to break out of it. Basically, it does set the benchmark."

The increase is at the top end of market expectations; analysts' forecasts ranged from 5% to 10% for the price talks. Iron-ore prices increased 19% in 2006 after a 72% gain in 2005 and a 19% rise in 2004.

Being the first to reach a deal and getting the increase lower than previous years makes Chinese negotiators look good. In the last round of price negotiations, Chinese steelmakers were frustrated with their inability to influence the talks even though they are the world's largest iron-ore consumers.