Singapore, 22 March 2011

Rebuilding disaster-hit Japan and a revival in demand from top consumer China should help iron ore prices rebound this year after a stalled bid to extend last year's more than 40 percent gain. The outlook on demand for the steelmaking raw material from China and Japan, the world's two biggest buyers, as well as the ever-contentious iron ore pricing regime are expected to dominate discussions at three conferences this week in China and Australia.

Spot iron ore prices had lost about 14 percent since touching record highs near $200 a tonne in mid-February as slow Chinese steel demand turned off buyers and worries emerged that disruptions in disaster-stricken Japan's steel output could lower its iron ore imports.

Iron ore prices may continue to fall over the next two to three months, before a demand-driven rebound happens, said Judy Zhu, commodity analyst at Standard Chartered Bank in Shanghai.

"But later this year, around the end of the second quarter, we may see China restocking and the rest of the world especially Western steel mills ramping up output in response to a recovery in demand," said Zhu, adding she has "full confidence" prices could jump back towards $200 a tonne.

Japan disaster impact on commodities:

http://graphics.thomsonreuters.com/11/03/JAPAN_CMD0311_CT.html

Japan's rebuilding of its ruined infrastructure would be key in reviving regional demand for steel and consequently, iron ore, in a colossal reconstruction some analysts have said could cost up to $180 billion.

Assuming around 10 percent of that bill is dedicated to steel, a two-year reconstruction programme could consume an additional 30 million tonnes of steel, according to estimates by Australia and New Zealand Bank.

That is equivalent to an annual 12 percent increase in Japan's steel output and iron ore and coking coal imports over the next two years versus zero cumulative annual growth in the past decade, ANZ said.

MOVE TO MONTHLY PRICING?

The world's second-largest steel producer, Japan made 109.6 million tonnes of crude steel in 2010, consumed only 60 million tonnes and mostly exported the rest to Asia, primarily South Korea, China and Taiwan.

Citing private estimates, the World Bank said Japan's latest disaster could range from $122 billion to $235 billion, or 2.5 to 4 percent of gross domestic product. The 1995 Kobe earthquake caused $100 billion in damage, or about 2 percent of GDP.

A recovery in demand should be good news to the top three iron ore producers -- Vale , Rio Tinto and BHP Billiton -- whose profits had soared thanks to record iron ore prices.

Australian miners led by Rio Tinto and BHP, which will be represented by their top iron ore officials at the March 22-23 summit in Perth, have been producing as much as they can to cash in on booming demand.

Australia, the world's top iron ore producer, expects output to rise 5 percent to 425 million tonnes this year. Officials from Vale's China unit along with those from top Indian iron ore exporter Sesa Goa and miner NMDC are among those attending the March 23-24 gathering in Beijing which follows a mostly China-focused event in Qingdao.

Participants are likely to tackle the current quarterly pricing regime with some sellers increasingly moving some contracts closer to spot prices.

Vale said on Friday it will stick with quarterly pricing even as rival BHP Billiton sells some of its material on a monthly basis and would like its contracts to move even closer to daily spot prices.

"We believe the three-month period is good enough to avoid major gaps with actual market prices and, on the other hand, smooth volatility of the monthly period," Vale's global marketing director Pedro Gutemberg told Reuters.

The miners abandoned a 40-year-old system of pricing iron ore supply contracts with steelmakers in April last year in favour of a quarterly scheme to better capture wild swings in spot prices.

Ends --

By Manolo Serapio Jr, Reuters – for Commodities Now