Fortescue Metals Group has delivered a big leap in full-year profit thanks to high iron ore prices, but noted a dip in demand from China as the Asian economic superpower tightens lending in an effort to beat down inflation.
Chief executive Nev Power said no shipments to China had been deferred but demand had cooled off recently.
Steel mills had become “a little more short-sighted in terms of their future buying” but this had not softened iron ore prices, he said.
The average iron ore sales price achieved by Fortescue in 2010/11, including freight costs, was $US149 ($A143.84) per dry metric tonne, up 68 per cent from the prior financial year.
“There’s no question that the tightening of credit in China has started to moderate demand in a small way,” Mr Power said on Friday after the miner delivered a 76 per cent jump in full-year net profit to $US1.02 billion.
“Once the inflation numbers in China are back under control, the underlying demand is very strong and that would pick straight up again.”
Head of sales and marketing David Liu said China’s five-year plan showed steel consumption and demand was set to remain strong.
Despite current market turmoil, Fortescue still expects to borrow $US1.5 billion in the next six months to help fund its $US8.4 billion, three-fold expansion in Western Australia’s Pilbara region, chief financial officer Stephen Pearce said.
“We would expect markets to have windows of opportunity … over the next six months and that will give us plenty of opportunities to complete the funding,” Mr Pearce said.
The now rapidly advancing expansion from 55 million tonnes per annum (Mtpa) to 155Mtpa has resulted in total liabilities jumping to $US6.19 billion from $US3.7 billion.
Fortescue shipped 40 million tonnes (Mt) of its own iron ore in the 12 months to June 30 plus almost 1.0Mt for other miners, and exceeded its 55Mt per annum run rate in August and September.
Ratings agency Moody’s Investor Service on Friday upgraded Fortescue’s rating outlook to positive from stable, reflecting progress made in expanding output and strengthened free cash generation.
Investment bank UBS said the result was broadly in line with market expectations but it was concerned the miner had flagged continued pressure on costs through the first half of this financial year.
“Higher costs … may see further pressure on near-term earnings forecasts,” UBS said.
Fortescue declared a final fully franked dividend of four cents per share, bringing the total payout for the year to seven cents.
Fortescue closed down 30 cents, or 4.96 per cent, at $A5.75 compared to a 3.5 per cent slump in the broader market.
