Producers are investing heavily in mine expansion in anticipation of steep rises in iron ore and coking coal prices because of record-breaking Chinese steel production.

Ore price talks start on Monday in Tokyo between Japanese steelmakers Nippon Steel, JFE Steel, Sumitomo Metal, Kobe Steel and Nisshin Steel - and iron ore producers BHP Billiton, Rio Tinto, and CVRD from Brazil.

This first round of talks will be followed by discussions between the Japanese steelmakers and coking coal producers, and between Chinese steelmakers and suppliers, which are to take place early in the new year. Iron ore and coking coal are mainly used for steelmaking.

The strong demand for iron ore has prompted producers to invest in new projects. Rio Tinto, the world's second-largest producer, has a $1bn (?ê572.7m) plan to expand its iron ore operations in Western Australia. And CVRD, the world's largest iron ore producer, is to lift production next year from about 144m tonnes to 160m.

Jim Lennon, metals analyst at Macquarie Bank, said: "This is the first time in many years that we are going to see the talks start on acceptance that prices are going up.

"This year it is not a question of if, but by how much, prices are going to rise."

Macquarie recently raised its forecast iron ore year-on-year price increase from 12.5 per cent to 17.5 per cent. The current price is about $19 a tonne. The price rise last year was 9 per cent. Macquarie has also raised its coking coal forecasts from its previous forecast of an 8.7 per cent rise to a 19.5 per cent rise to $55 a tonne.

Goldman Sachs revised its forecast iron ore price increase from 8 per cent to 15 per cent.

Iron ore prices are predominantly settled on long-term contracts. India is the only producing country that has a spot market. Current iron ore spot prices are quoted at between $40 to $50 a tonne, compared with the contract rate of $17 a tonne for local producers.

The expansion of the Chinese steel industry in the past decade is pushing bulk commodity prices up and is largely responsible for the rise in global steel output. China produced 124m tonnes in 1999. This is forecast to rise to 219m this year. World steel production was 788.5m tonnes in 1999 and is estimated to rise to 960m tonnes this year.

The increase in production and demand has seen steel prices advance this year. US hot-rolled coil steel prices are close to $390 a tonne, against about $220 at the start of last year.

Demand for iron ore - with seaborne trade reaching an unprecedented level of 519m tonnes - has pushed dry bulk freight rates to record highs, another factor pushing iron ore prices higher, say analysts.

Close

Today's Top News		Top Business News
+Captured Saddam faces tough interrogation ( 2003-12-15) +China identifies Eastern Turkistan terrorists ( 2003-12-15) +Saddam detained; Bush says attacks not over ( 2003-12-15) +Saddam 'caught like a rat' in a hole ( 2003-12-15) +Survey: Chinese firms lack leadership talent ( 2003-12-15)		+Strong competition for Chinese bad loans ( 2003-12-15) +Mines investment up ( 2003-12-15) +Jeweler to launch gold for investment ( 2003-12-15) +Public firms slowly learning ( 2003-12-15) +IT companies see fast growth ( 2003-12-15)