Merrill Lynch Reverses Iron Ore Contract Price Call to 10% Gain

By Jesse Riseborough

Aug. 7 (Bloomberg) -- Iron ore contract prices may rise 10 percent next year on demand from China, said Bank of America Merrill Lynch, reversing its estimate of a 5 percent drop.

Steel mills may pay 106.6 cents a dry metric ton unit for Australian iron ore fines in the year starting April 1, Merrill Lynch said yesterday in a report. That compares with this year’s 96.9 cents and the bank’s previous forecast of 92.1 cents.

Cash prices for Australian ore delivered to China, the world’s biggest buyer, have risen 38 percent this year. China’s imports surged almost a third in the first half as the government’s 4 trillion yuan ($585 billion) stimulus program spurs mills to produce more steel for automobiles and buildings.

“Iron ore’s seaborne trade is recovering spectacularly from the steel market’s massive fourth quarter 2008 correction,” Merrill Lynch analysts led by Michael Jalonen and Tom Price said in the report. “2009 is a far better year than seaborne iron ore producers ever expected. We are now modest bulls on iron ore.”

Australia is the world’s largest exporter of the steelmaking ingredient. Rio Tinto Group, BHP Billiton Ltd. and Fortescue Metals Group Ltd. are the nation’s three biggest exporters respectively.

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