October 18, 2011
FORTESCUE Metals Group expects iron ore demand to remain strong, adding to the sector's confidence in the China growth story.
The West Australian miner, releasing its quarterly results yesterday, added its name to the list of major producers ignoring market nerves to confirm that Asia's appetite for the steelmaking commodity was still firm.
Chief executive Nev Power said the miner had continued to sell all of its production in the September quarter despite a small drop in price.
Global major Rio Tinto's chief executive Tom Albanese said last week the fundamentals for bulk-traded commodities were holding up well, as he released the miner's quarterly results, which showed its iron ore output hit a new record.
Brazil's Vale, the world's biggest iron ore exporter, is also upbeat on the outlook and last month forecast demand would remain strong because of growth in the Chinese economy and infrastructure investment.
The expected strong demand comes despite a small drop in the price of iron ore, which Fortescue said was a carry-over from financial uncertainty in Europe.
The Platts iron ore index, on which Fortescue's sales contracts are based, fell from a high of $US183 ($177) a tonne to a low of $US170 during the September quarter.
"I think once that's sorted out, we'll see most of the volatility and cautiousness in the Asian markets disappear because fundamental demand is very strong," Mr Power said.
Fortescue marketing head David Liu said Chinese steel consumption was expected to rise by 7.5 per cent this year. "Despite the cautious environment, we are confident that ... weakness now in the market will not translate into substantially depressed market conditions for a considerable period of time," Mr Liu said.
The Perth-based Pilbara miner, which reported that shipments rose 5.4 per cent in the September quarter to 12.2 million tonnes, also flagged that the pricing cycle for iron ore could shorten further from quarterly contracts.
"Our strategy has been, since the (annual) benchmark pricing was dismantled in March last year, to try (to) achieve pricing in line with the Platts (commodity) index," Mr Power said. "And we believe that the closer we are to a spot market through some sort of index pricing, that allows the greatest level of transparency and the greatest responsiveness to supply demand in the market."
Mining giant BHP Billiton, which led the market in abandoning the annual benchmark contracts in favour of quarterly prices, now sells more than 50 per cent of its iron ore on a monthly basis.
Fortescue also highlighted in its quarterly results that production costs fell 6.5 per cent during the quarter, to $US49.78 a tonne, while selling prices were marginally higher at $US160 a tonne.
Article by Sarah-Jane Tasker From:The Australian