big trouble

By Alex Wilson

Of DOW JONES NEWSWIRES



MELBOURNE (Dow Jones)--Mount Gibson Iron Ltd. (MGX.AU) said Wednesday it has received

requests from a number of its customers to delay iron ore shipments in the second quarter

of fiscal 2009 as demand from China slows.

News that iron ore buyers who have signed binding long-term contracts are seeking to

defer shipments is an ominous signal that falling steel prices and growing iron ore

stockpiles in China could start to impact Australian iron ore miners, analysts said.

Mount Gibson said its customers have entered into binding long-term sales agreements

and it isn't obliged to agree to their requests to delay shipments of hematite ore

in the second quarter.

"Customer and iron ore sector analysis indicates a slow down in demand for iron

ore in China due to current economic uncertainty and the tightening of credit facilities,

leading to reductions in steel production and the current significant build up of iron

ore stockpiles at Chinese ports," the company said in a statement.

The Perth-based miner said it will try to reach an acceptable agreement with customers

and take any necessary steps to minimize disruptions to its operations.

"Mount Gibson is well placed to modify operational objectives, project objectives,

associated expenditure and production targets should this be required and will advise the

market as to the possible impact on it operations once discussions with customers are

more advanced," it said.

One analyst who asked not to be named said the news will put "the fear of

God" into marginal iron ore projects in Australia if it is a signal of things to

come.

The market responded by dumping the stock. At 2315 GMT, its shares were down 27.5

cents, or 24%, at 88 cents. The S&P/ASX 200 index was down 0.8%.

ANZ commodities analyst Mark Pervan said the Mt Gibson announcement could be a

significant indication of the potential impact of slowing Chinese steel production.

"This could be a sign of the times and could be the first of a number of contracts

(affected) as we see conditions in China slowing up," he said.

BHP declined to comment on whether it has seen any similar requests and Rio Tinto

wasn't immediately available for comment.

The slow down in demand has seen the spot price for iron ore decline and if this trend

continues it is likely to curtail plans by Rio Tinto to sell five million metric tons of

iron ore into the spot market in the second half of 2008.

Rio Tinto Chief Executive Tom Albanese said last week the miner is still targeting the

five million tons, but also noted that the sales are only being carried out because there

is a premium on offer and would be dependent on market conditions.

ANZ's Pervan said the spot price is now close to parity with long-term contract

prices and he expects it to fall below contract prices within weeks.

Mount Gibson also announced Wednesday it has received final federal government

environmental approval of management plans for its Extension Hill direct shipping ore

project.



-By Alex Wilson, Dow Jones Newswires; 61-3-9671-4313; [email protected]