2008 Iron Ore Price Increases Will Hurt Steelmakers

The possible tie-up between BHP and Rio Tinto are worrying Chinese steelmakers who do not have iron-ore reserves of their own. China is the largest producer and end user of steel. BHP, Rio Tinto, and CVRD altogether control about 75% of international trade. BHP and Rio Tinto own more than 85% of the world's largest copper mine, the Escondida deposit in Chile. This leaves Chinese steelmakers with weak bargaining position in the current negotiations. Iron-ore producers already aim about 30-50% price increase for 2008. Price hikes will ultimately affect steel's biggest end users such as auto and appliance makers. Meanwhile, the world's largest steelmaker by output, ArcelorMittal already plans price increases in the first half of 2008.