Rio to Seek `Significant' 2009 Iron Ore Price Rise, RBC Says

By Jesse Riseborough

Sept. 26 (Bloomberg) -- Rio Tinto Group, the world's second- largest iron ore exporter, may seek a significant rise in prices from Asian steelmakers next year as it battles a $122 billion takeover bid from BHP Billiton Ltd., RBC Capital Markets said.

``Mounting a strong takeover defense, we believe Rio Tinto will play hard ball again and push for a significant price increase,'' RBC analysts led by Sydney-based Lee Bowers said in an e-mailed report. ``We see a very real risk that the contract negotiations are again drawn out towards mid-2009.''

A takeover of Rio Tinto by rival BHP, the world's largest mining company, would create the world's biggest exporter of iron ore, providing suppliers with greater influence in annual negotiations with steelmakers, RBC said. BHP and Rio this year won a record increase from mills of as much as 97 percent.

``A combination of declining Chinese mine grades, increasing Indian export regulation, an evolving iron ore marketing landscape and ongoing rail and port infrastructure constraints should serve to keep iron ore markets finely balanced,'' RBC said in the report dated Sept. 24.

The broker is forecasting a 15 percent gain in prices for the year starting April 1, 2009. Iron ore prices, which have risen for six straight years to a record, may rise 18 percent next year, Goldman Sachs JBWere Pty said Sept. 16.

To be sure, producers may win smaller-than-expected price increases next year as the global credit crisis prompts steelmakers to cut output, according to a Bloomberg survey published Sept. 22. Five of nine analysts surveyed may trim their forecasts for annual iron-ore price rises next year of 15 percent to 30 percent. Three analysts plan to leave their estimates unchanged, and one said producers won't win any increase at all.

To contact the reporter on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net