February 15, 2012 / 1:43 AM / 6 years ago

UPDATE 2-Fortescue bets big on stronger China demand

* Sees strong growth from long-term China demand

* Keeps full-year target at 55 million/t

* First-half profit doubles to $801 mln

* Warns current-quarter shipments hit by cyclone

By James Regan

SYDNEY, Feb 15 (Reuters) - Australia’s Fortescue Metals Group shrugged off worries about a slowdown in Chinese demand for iron ore, vowing on Wednesday to stick with an $8.4 billion mine expansion plan and forecast steady prices for the steel-making raw material.

Fortescue, which has only been producing ore since 2008, sells 95 percent of its output to Chinese steel mills, the world’s biggest buyers of iron ore, and plans to nearly treble production by mid-2013.

Mega producers BHP Billiton and Rio Tinto are also boosting production, leading analysts to forecast a medium-term glut of iron ore amid signs that China’s super-charged demand growth for the metal is easing.

Spot iron ore prices fell 19 percent in 2011 as China clamped down on liquidity, denting steel demand for construction, and have have been fairly steady this year around $140 a tonne.

Fortescue Chief Executive Nev Power said the company was counting on China to remain a big buyer in coming years.

“Long term, China’s growth is forecast to be stable around the 9 percent mark and we don’t see significant new supply to come into the market in the short term, and, therefore, expect the price to remain in that range,” he said.

Indian iron ore exports to China were dropping off due to tariffs and growing demand at home, while domestic Chinese iron ore ouput was expected to drop off in favour of higher iron content imported ores, he said.


Fortescue, Australia’s third largest iron ore miner, reported a half-year net profit of $801 million, more than double a year ago but below analysts’ expectations for a profit about $840 million, pushing its shares down 1.4 percent in a firmer overall market.

Fortescue also slightly lowered its forecast for third quarter output due to a cyclone that interrupted shipping but held its full-year forecast at 55 million tonnes.

Power declined to comment on speculation that a potential predator may be building up a stake in the company after a mystery buyer snapped up at least 2.9 percent of Fortescue’s stock in the last week.

The shares are believed to have been sold by holding group Leucadia., but analysts downplayed takeover talk given leading shareholders are seen as unlikely sellers.

Billionaire Andrew Forrest, who founded Fortescue in 2003, is the largest shareholder, holding nearly 32 percent of the company Hunan Valin, a Chinese state-owned steelmaker is second-ranked, with 14.7 percent.

“It wouldn’t be overly bullish for the iron ore price if the biggest iron ore bull in history decides to sell out of his biggest iron ore assets,” said Hayden Bairstow, an analyst at CLSA.


China’s steel demand is expected to grow 6 percent in 2012 and 5.8 percent in 2013, down from stunning 12.8 percent compound annual growth during 2008-11, according to Bank of America-Merrill Lynch forecasts.

This would represent an extra 40 million tonnes of ore.

Power said Fortescue was sticking with a construction program underway to nearly triple production to 155 million tonnes a year after securing funding last October.

Australia supplies about 43 percent of China’s iron ore imports, with most coming from BHP, Rio and Fortescue.

Rio Tinto last week earmarked $3.4 billion to expand iron ore mining in Australia, and expects its iron ore production in Australia to reach 230 million tonnes by the end of this quarter and 283 million by the end of calendar 2013.

BHP Billiton, which trails rival Rio Tinto in iron ore production in Australia, is boosting annual shipments by 100 million tonnes to 260 million tonnes by the middle of the decade.

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