Goldman Sachs JBWere Pty cash prices for iron ore into China will trade at more than the benchmark Asian contract price for at least the next 12 months as demand from steel makers’ rebounds.

Analysts Mr Malcolm Southwood and Mr Paul Gray in a report said that the broker raised its third quarter forecast for ore for immediate delivery about 10% to USD 84 per tonne. This is for 62% grade ore, including freight, which is trading about 13% above the contract price.

Goldman said that “We believe supply demand dynamics in the seaborne iron ore market are sufficiently robust to support spot prices in the mid to high USD 80 a ton range for at least the next 12 to 18 months. Uncertainty regarding the price responsiveness of high cost Chinese domestic iron ore production is a key risk to our view.”

Mr Christopher LaFemina an analyst of Barclays Plc in a report said that “Rio Tinto, BHP Billiton, Vale and other iron ore producers, are likely to benefit from iron ore prices that significantly exceed consensus expectations for at least the next five years.” The bank forecasts contract prices to rise 5% in 2010 and at least a further 10% in 2011.

LaFemina said that “The iron ore annual benchmark contract price system is not sustainable. In the long run, iron ore sales especially from Rio Tinto and BHP Billiton are more likely to be made under shorter-term contracts at prices indexed to futures prices or spot prices. This change should result in higher but more volatile realized prices for Rio and BHP.”

(Sourced from Bloomberg.net)