OREANDA-NEWS. February 16, 2010. Global iron ore producers BHP, Rio Tinto and Vale are pushing Japanese steel companies to accept a 30-40% increase of in iron ore contract prices for the 2010-2011. According to the Financial Times, if the miners get their way, prices could be settled at (or even above) US90/t, which is 40% higher than the corresponding prices for 2009-2010, reported the press-centre of OTKRITIE Financial Corporation.     

View: The increase in iron ore prices was predictable given the hike in spot prices, which have already reached US 125/t in 2010 versus just US 87/t in October 2009. The new contract settlements could be a catalyst for further price growth in steel products since the costs of non-integrated producers would be higher, while demand remains strong. Such conditions favor all Russian steel makers except MMK, since they are fully self-sufficient in terms of raw materials.

Valuation and Action: We have a BUY rating for Severstal and MMK and a HOLD for other steel producers, but will revise our valuations soon on the back of recent market developments.