Fortescue Metals Group says it is confident it will find enough customers for its iron ore when it ramps up annual production to 155 million tonnes from next year.
Australia’s third largest iron ore producer revealed on Tuesday that it shipped a record 14.77 million tonnes (mt) of iron ore in the December quarter.
That was a 19 per cent increase from 12.2mt in the September quarter, and beat guidance of 13.5mt to 14mt.
“We believe there is plenty of market capacity for our 155 million tonnes,” chief executive Nev Power said.
Fortescue is forecasting an increase in the iron ore price to about $US135 ($A131.29) a dry tonne for the current quarter.
Iron ore prices in the December quarter to about $US122 ($A118.65) per dry metric tonne.
This was down by a third from nearly $US180 ($A175.05) earlier, amid Chinese credit tightening and high volatility within global commodity markets.
Mr Power told reporters on Tuesday the miner had already contracted at least 120 mt to 130 mt a year and was continually working towards 155 mt.
He said the price volatility would help Fortescue’s cause, with lower prices forcing weaker high cost domestic producers out of the market.
Fortescue outperformed the market on Tuesday, rocketing up by 18 cents, or 3.9 per cent, to close at $4.80, compared to a 1.6 per cent rise across the broader All Ordinaries index.
Fortescue is undertaking an $US8.4 billion ($A8.17 billion) expansion to lift production from 55mtpa to 155mtpa by mid 2013.
Mr Power said was he confident Chinese economic growth would remain above eight per cent, ensuring a strong steel industry.
He also said that India would export less iron ore to China, to retain for its own use.
City Index chief market analyst Peter Esho said Fortescue’s price forecast was too optimistic and that about $US120 ($A116.70) a tonne was a more realistic figure in light of recent softer than expected investment and construction figures from China.
China has introduced tight credit restrictions in the past two years to curb inflation and housing prices.
“I think the pace of infrastructure spending will still moderate and there is a direct correlation with iron ore price as steel markets remain challenging,” Mr Esho said.
“Fortescue admits that in steel markets there is a still fair bit of supply to work through there,” he said.
“If they continue to deliver quarterlies like this however, they will be rewarded (in the share market).”
Margins remain very strong at $US75-$US80, with production costs in the December quarter falling by seven per cent to $US46.43 ($A45.15) a wet metric tonne of ore, from $US49.78 ($A48.41) in the September quarter.
Mr Power said last July that Fortescue could endure a price as low as $US70 ($A68.08) a tonne and remain profitable.
A rival iron ore trading platform was launched in China this week in an attempt to more strongly influence global iron ore prices.
The amount of ore mined by Fortescue in the three months to the end of December was 16.01 million tonnes, up one per cent from the September quarter.
Mr Power said the production result was strong and he was optimistic that an economic recovery in the US this year would make up for weakness in Europe, helping demand for Chinese steel.
