TORONTO (miningweekly.com) – Iron-ore prices will likely be at least 50% higher this year compared with 2009, CRU Strategies Consultants COO Phil Newman said on Sunday.

He was relieved to find, through a show of hands, that most of his audience on the first day of the Prospectors and Developers Association of Canada convention, under way this week in Toronto, seemed to agree with his forecast, with the general consensus for benchmark prices falling between 50% and 75% higher.

Prices for the steelmaking ingredient could be at least equal to, if not above, the record prices set in 2008, Newman said.

Continued growth in steel production, including a recovery of output outside China, will keep demand strong this year, and global seaborne trade in iron-ore is expected to increase by around 9% or 10% year-on-year.

However, he also commented that the “crumbling” of the benchmark system in iron-ore does seem to be accelerating.

The three biggest producers of iron-ore, Brazil's Vale, Rio Tinto and BHP Billiton, have historically agreed on prices once a year in negotiations with Asian and European buyers.

However, all three have indicated they want to move towards quarterly, or even market-linked pricing, with BHP Billiton CEO Marius Kloppers vowing that he will not enter into any fresh benchmark contracts.

While benchmark prices are set for the year, the spot price for iron-ore has been exceptionally volatile over the last year, dipping below the contract price for a while, before surging back to well above the benchmark levels.

The movement of the spot price below the contract price, during which buyers increased their purchases on the spot market, was likely another nail in the coffin of the benchmark system, Newman commented.

With Chinese demand remaining strong, and with returning demand in the rest of the world, it is possible that steel production could be constrained by iron-ore supply as soon as this year or next year, he suggested.

However, the same possibility exists for the other key steelmaking ingredient, metallurgical coal, which could be a negative for the iron-ore market, if producers were pumping out the ferrous metal to meet demand, and steel production was forced to slow anyway because of a shortage of metallurgical coal.