Miner Fortescue Metals Group is undeterred by an expected continuation of softer iron ore prices as it eyes long-term output expansion.
The Platts iron ore index, on which the company’s sales contracts are based, fell from a high of $US183 a tonne to a low of $US170 a tonne during the September quarter.
In the company’s first quarterly production report since new chief executive Nev Power took over from Andrew Forrest, Fortescue said the fall in the Platts index would flow through to lower average sales prices in the early part of the current quarter.
Fortescue also on Monday reported a 5.4 per cent rise in iron ore shipments from its mines in the Pilbara region of Western Australia to 12.2 million tonnes, slightly better than expected by UBS analysts.
The company received an average iron ore price during the September quarter of about $US160 per tonne.
Mr Power said short-term softening in the iron ore market had not deterred Fortescue in its long-term plan to increase production beyond 155 Mtpa.
It is currently undertaking a $US8.4 billion expansion to lift production from 55Mtpa to 155Mtpa by mid 2013.
Mr Power said the Fortescue board took a long-term view of market conditions and was not concerned its longer-term expansion plan to more than 155Mtpa would be derailed.
“Most of that (iron ore market softening) appears to be a carry over from the financial uncertainty in Europe,” Mr Power told a teleconference on Monday.
“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.”
Head of marketing David Liu said iron ore prices started softening in late September amid growing uncertainty about global economic growth.
Chinese steel mills had been under pressure, with the government placing restrictions on monetary supply as it strove to rein in inflation.
However, Chinese steel consumption was expected to rise by 7.5 per cent this year, Mr Liu said.
“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.
He said China was commissioning, or about to commission, new steel-making capacity but the iron ore market was expected to become more competitive because steel mills would become more innovative and cost conscious.
Mr Power said no significant new sources of supply were expected to come into the market in the next five years that could change the supply demand balance significantly.
He said the company would, by the end of 2012, be exporting 95Mtpa from its Chichester operations, while work on its new Solomon mine was advancing.
“This puts us on track and on budget for our 155Mtpa production by June 2013.”
Shares in the miner closed up 22 cents, or 4.5 per cent, at $5.11.
