CAPE TOWN, Feb 9 (Reuters) - Iron ore contract prices are likely to fall by as much as 30 percent this year and be flat next year after the financial crisis led to a decline in demand from steel makers, a consultant said on Monday.
“Prices (will see) a fall of perhaps 25 to 30 percent this year, flat next year and up possibly in 2011,” Magnus Ericsson, president of the Raw Materials Group told a mining conference.
He said the sector may also see a change from the traditional one-year contract prices to six months and quarterly contracts as the spot market increases its influence over longer term deals.
“A shorter period of time, a half a year initially and perhaps even only a quarter, so in the long run a more flexible, hopefully, industry,” he said.
Ericsson said a lack of consensus, supply side concentration and a scarcity of information were challenges producers faced as they negotiated on the iron ore price system and benchmarks, as they have done since the 1950s.
However he saw a growing importance for the spot market, mainly between China and India and domestically in China, seeing trading of up to 25 percent today.
“We will see the benchmark system continue, but it will not be the only system used. It is convenient and brings stability to the market,” Ericsson said.
He said the spot market offered advantages of frequent price changes and hedging possibilities.
Ericsson said the iron ore market could rebound strongly in 2012, partly due to strong demand from China, whose small-scale domestic iron ore producers were expected to decrease production. (Reporting by Wendell Roelf; Editing by James Macharia)