April 22 (Bloomberg) -- Iron ore spot prices, trading at a 21 month-high, may drop about 30% in coming weeks on concern China is taking steps to slow the pace of economic growth, UBS AG said.

Cash prices for 63 percent iron ore into China, the biggest buyer, from India may drop to $130 a dry metric ton, including freight, UBS Sydney-based analyst Tom Price said yesterday in a report. The ore traded at $186 on April 16, the highest since July 25, 2008, according to prices from Metal Bulletin.

Prices have risen 38 percent this year as Chinese steelmakers including Baoshan Iron & Steel Co. are increasing purchases to feed furnaces and fulfill order books. China this month moved to cool its real estate market to slow the fastest economic growth in almost three years.

“Iron ore’s various high and rising spot signals are now threatened by a range of bear factors, including a growing expectation that China’s government will move more aggressively to curb economic activity,” Price said. New policies targeting iron ore price speculation and rising steelmaker costs may also cause prices to decline, he said.

Fortescue Metals Group Ltd., Australia’s third-largest iron ore exporter, and Gindalbie Metals Ltd. are among producers whose shares may drop, presenting a buying opportunity for investors as the “correction” will be short term, he said.

Chinese Steel Output

Fortescue Metals this week said shipments jumped 53 percent in the three months ended March because of Chinese demand.

Chinese steel production will reach 640 million tons this year, Graeme Train, an analyst at Macquarie Group Ltd., said today at a conference in Shanghai. That’s up from the record 568 million tons in 2009.

Along with stronger demand from other countries, iron ore prices will stay above $120 a ton this year, Train said. Exports from India will also be lower in the second-and third quarter because of the impact from seasonal weather patterns, he said.

Exports from India’s western state of Goa, which exports 38 percent of the country’s iron ore, typically stops after seasonal rains start in late June.

Brazil’s Vale SA and BHP Billiton Ltd. this year broke with a 40-year custom of selling iron ore on annual contracts. Vale, the biggest supplier, won a 90 percent price increase from Japanese mills for quarterly contracts started April 1. Chinese steelmakers have opposed the move.

Should iron ore prices rise by between 60 percent and 80 percent, the costs of making steel would rise by 900 yuan a ton to 1,100 ($161) a ton, Cui Jianhua, the chairman of Shanghai Baiying Iron & Steel Group, a trader, said today.

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