The year 2010 has started with good bull run in industrial commodities, including iron ore, steel, scraps and coal thanks to the sharp recovery in emerging economies, especially China and India.

Every year long-term agreements for industrial commodities start happening at the beginning of the financial year, but this time, for the first time, companies are entering into long-term agreements beforehand.

Particularly, agreements for iron ore have happened at almost double the rates than the previous year between mines and companies.

On the other hand, agreements for securing coking coal have been entered at 50% more price, because of which steel companies have been forced to hike their prices from the new financial year 2010-2011.

In the domestic market coking coal prices are ruling at around Rs 20,000 per tonne and according to industry sources prices could reach to 24,000-25000 per tonne by the end of 2010.

As one tonne of steel manufacturing needs two tonnes of iron ore, the demand for iron ore will be huge in future.

In last 10-days alone iron ore prices have risen by almost 20%-40% which is the one of the biggest rally in ore prices in recent history.

Globally, more than 50% of world iron ore is produced by three companies, BHP Billiton in Australia, Rio Tinto and Brazil Vale.

These companies historically do full year supply agreement for iron ore but this time they have offered only three-month forward contract.

Also, the price offered is 50%-100% higher than last year?s agreement. ?

India?s biggest iron ore producer NMDC, which produces almost 29 million tonnes of ore annually, has also indicated that it might increase its prices by almost 40%-50% soon.

India, the world third largest iron ore exporter after Australia and Brazil, exports most of its produce to China.

Last December, Indian government raised the export duty on iron ore lumps to 10% from 5% and on iron ore fines to 5%, which lead to drop in exports.

India produces 200-220 million tonnes of iron ore every year, of which around 100-110 million tonnes is exported.?

The expected bull run in industrial commodities might set the stage for a small round of price hike at the beginning of April 2010, which could adversely impact industries like engineering, auto and brass parts and steel in the next few months.

On the back of higher spot prices and improved steel production, RBS bank has raised its forecast of the 2010 iron ore prices by 10%. ?

However, Macquarie Bank in its December price forecast had raised the price of Australian iron ore fines by 30% in 2010-2011, as against its earlier forecast of a 10% hike. Its forecast for Brazilian pellets has been increased to 40% from 15%.

JP Morgan had predicted iron ore prices to rise by 20% in 2010-2011 as against its earlier prediction of 10% increase in prices in 2010-2011.

After looking at China?s increasing demand for iron ore, lower mining capacity and increasing steel demand, iron ore prices are seen rising at least in the short-term while, some correction should be expected by the middle of the year because of slow demand. However, long-term outlook for iron ore still remains bullish.