In case you had hoped high machinery prices would cool demand and soften the market, think again. My take is they will be unable to absorb even a small part of the raw materials cost pressure without getting beat up by shareholders.
Rio Tinto Group, the world's second- biggest iron-ore exporter, said China agreed to a record price increase as mining companies struggle to keep pace with surging world demand. Baosteel Group Corp. will pay $144.66 a dry metric ton for so-called Pilbara blend fines in the year that began April 1, up 80 percent from a year ago, Rio said today in a statement. Pilbara blend lump will rise 97 percent to $201.69 for the Shanghai-based steelmaker. The contract marks the first time Chinese buyers have agreed to pay more for Australian ore than supplies from Brazil, which are costlier to ship. Chinese mills have so far failed to arrest six years of increases in the cost of the steelmaking raw material. The higher prices for iron ore will help Rio defend itself against a $171 billion hostile bid from BHP Billiton Ltd., the world's largest mining company. [More]What I'm waiting for is if farm machinery manufacturers will be asked to prepay next year's steel to protect against even more price increases.