Iron Ore Prices May Fall 50% on China Slowdown, Rinehart Says

By Rebecca Keenan and Stephen Engle

Jan. 22 (Bloomberg) -- Iron ore contract prices may fall as much as 50 percent this year amid a slowdown in China, the world’s biggest consumer of the raw material, according to Australia’s richest woman and mining magnate Gina Rinehart.

“We’re hearing 30 percent, 40 percent, 50 percent discounts to last year’s contract price,” Rinehart, who controls closely held Hancock Prospecting Pty, said in an interview with Bloomberg Television. That compares with the average forecast of a 30 percent cut in a Bloomberg survey of 11 analysts last week.

Chinese steelmakers are likely to win their first cut in contract prices in seven years as a global recession curbs demand for commodities. Rinehart’s partner, Rio Tinto Group, the world’s second-biggest exporter of the ore, and Baosteel Group Corp. began talks this month to set prices from April 1, according to two company executives who asked not to be identified.

“The economy in China is very sad right now,” Rinehart said. China’s economy may rebound soon and “ultimately, prices will rise,” she said. Hancock isn’t party to the talks.

Hancock Prospecting is partner with Rio in the Hope Downs iron ore project in Western Australia. Hancock is also seeking to develop the Roy Hill iron ore mine in Western Australia.

Rio, BHP Billiton Ltd., and Brazil’s Cia. Vale do Rio Doce, which handle three-quarters of traded iron ore, sell the steelmaking material under long-term contracts to China’s 20 biggest mills and traders at agreed annual prices.

China may be asking for a price cut of between 40 percent and 45 percent, Macquarie Group Ltd. analysts led by London-based Jim Lennon said in a Jan. 12 report. UBS AG analysts have forecast a decline of 40 percent. A 30 percent cut would still be the second- highest price on record.

To contact the reporter on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net