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UPDATE 1-ArcelorMittal's US head sees iron ore up 30-35 pct

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NEW YORK, Dec 5 (Reuters) - The head of ArcelorMittal SA's ISPA.ASMT.N North American operations said on Wednesday he expects the price of iron ore, a key raw material for steelmaking, to rise 30 percent to 35 percent in 2008.

Louis Schorsch, president and chief executive of flat carbon in the Americas, also said that initial orders for hot-rolled steel in the 2008 first quarter are “very positive.

“It’s hard to not be pretty bullish about some significant improvement in the North American (steel) market in 2008,” he said in an interview.

Asked about iron ore prices, which went up 71.5 percent in 2005, 19 percent in 2006 and 9.5 percent this year, Schorsch said everything he was seeing indicated they would rise between 30 percent and 35 percent in 2008.

But, he added, ArcelorMittal, the world’s largest steelmaker, was not as exposed to such high price hikes as other manufacturers because the company is largely self-sufficient in iron ore in many parts of the world.

In addition to its acquisition of Canada's Dofasco, which had owned iron ore mines, ArcelorMittal is also in the process of buying Wabush Mines in Labrador and has long-term supply contracts with iron ore pellet maker Cleveland Cliffs CLF.N.

The Wabush transaction is near completion and will bring ArcelorMittal closer to its stated objective of 75 percent iron ore self-sufficiency globally, from around 45 percent now, Schorsch said. The Netherlands-based company is also developing iron ore mine projects in Liberia and Senegal, he said.

Company founder and CEO Lakshmi Mittal built ArcelorMittal into the world’s largest largest steelmaker largely by buying up iron ore mines along with inefficient steel companies.

“That’s turned out to be a pretty good strategy, given what’s happened in the iron ore world,” Schorsch said.

Asked about a proposed merger of mining giants BHP Billiton BLT.L and Rio Tinto RIO.L, Schorsch said steel companies were concerned because it is already a concentrated market, with three big players, BHP, Rio and Brazil's CVRD VALE5.SA.

“To take three down to two, I think there is a lot of concern. Since 2004, we’ve got iron ore prices up over 150 percent and next year we’re expecting 30-35, even north of that.

“There is some risk on the pricing front, where potential price increases wouldn’t be driven by supply and demand balance so much as just excess concentration. People look at that and think: ‘This makes us very nervous.’

“It’s an advantage for us that we’re roughly 50 percent self-sufficient because the higher the iron ore price goes up the bigger that advantage becomes,” Schorsch said.

The price of coking coal, which is also crucial in steel-making, is rising, he said, but not as much as iron ore.

Asked if the credit crunch and U.S. housing weakness were hurting the steel industry, Schorsch said it had little direct effect, but might trickle down if its customers were affected.

“We feel going into ‘08 we have a bit of a wind at our backs,” he said of the U.S. industry.

There was a big production reduction this year, so inventories are at very low historical level, while less imports are coming in than a year ago. Also, demand in China, India and other developing countries continues unabated.

“U.S. prices today are actually below the prices in China,” he said. “The iron ore prices are going to be passed on and that will help push up (steel) prices,” he said.

In fact, ArcelorMittal has already announced a price increase for 2008 and still the orders for January are positive, he said. “Steel, specifically, all the signs are that we should have a strong recovery in the U.S.” (Editing by Gary Hill)

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