March 2 (Bloomberg) -- Benchmark iron ore prices may rise 60 percent this year on strong Asian demand and as BHP Billiton Ltd. pushes steelmakers to accept pricing pegged to higher spotlevels, Morgan Stanley analysts said.
Cash prices for iron ore may average $127 a metric ton this year, the analysts including Craig Campbell and Peter Richardson said in a note dated today. Benchmark contracts were settled at about $61 a ton for Australian ore last year.
BHP Billiton, Rio Tinto Group and Vale SA, the world's three biggest iron ore suppliers, are seeking to claw back a price cut given to steelmakers last year as the global economy recovers. Some Asian steelmakers may struggle to pass on all the higher raw material costs through price increases, Morgan Stanley said.
"We forecast global steel demand to rise 12 percent in 2010, which should help steel producers to push through much of this cost inflation, but perhaps not all," Morgan Stanley analysts including Charles Spencer said.
Morgan Stanley raised its forecast for prices of hot-rolled coil, a benchmark steel product, by $45 a ton to $625 a ton, which is $15 less than what is needed to pass on all the costs, it said. Steelmakers in India, Russia and Brazil will probably be able to pass on all the costs, the brokerage said.
BHP, the world's largest mining company, may push most of its Chinese customers to accept index prices for iron ore, the Morgan Stanley note said. The miner may sell 44 percent of iron ore on cash or index prices, it said.
BHP and some Chinese steelmakers have agreed to a provisional 40 percent increase in contract prices for iron ore, UC361.com analyst Hu Kai said last month. China is the world's largest consumer of iron ore. Index prices are based on benchmarks developed by BHP, investment banks and market research companies that are pegged to spot prices.
Iron ore suppliers and steelmakers used to fix prices at annual talks. Chinese mills didn't agree to contract prices last year, and BHP Billiton has been pushing mills to accept more flexible pricing for both iron ore and coking coal.
Suppliers of the two steelmaking ingredients may also demand a premium over cash prices for annual contracts, Morgan Stanley said.
Coking coal contract prices may settle at $222 a metric ton, and cash prices may average $203 a ton, the brokerage said. Prices were set at about $129 a ton last year.