fmg increased sales to china

UPDATE 1-Fortescue bucks trend to sell China more iron ore
20/11/2008 7:27:00 PM
(By James Regan

SYDNEY, Nov 20 (Reuters) - Fortescue Metals (FMG.AX


Australia's No. 3 iron ore miner, has increased its sales to China in stark contrast to gloom surrounding a sector reeling from falling orders from steel mills.

Fortescue, led by an outback self-made billionaire, said it is doing what bigger rivals including Rio Tinto cannot -- increase sales of iron ore to China's shrinking steel industry.

Fortescue has secured an increase of 3.5 million tonnes to China at prevailing contract prices, the firm said on Thursday.

"Fortescue's definitely going against the trend right now," DJ Carmichael & Co analyst James Wilson said. "It's the one piece of positive news the miners have had in a long time."

Facing fewer orders as steel mills slow down, world number one and two suppliers Vale of Brazil and Rio have already removed a combined 50 million tonnes of iron ore capacity this quarter.

That's enough to make 25 million tonnes of steel, though China alone is forecast to reduce its steel production by more than twice that amount next year, prompting analysts to predict miners will sell less, not more ore next year.

PREVAILING PRICES

BHP this week said it had received request from defer shipment of up to 6 million tonnes of ore until next year.

Even with the downturn, the three top miners will sell well over a half-billion tonnes of ore in 2008.

The company also seized on an opportunity to buy back some of its own bonds at a 32 percent discount to their face value, after the paper fell in the secondary market.

Fortescue would not name the steel mill buying the additional ore other than to say it was one of China's five biggest.

Fortescue's founder Andrew Forrest in the past has touted China's largest steel company, Baosteel, and others as prized customers.

Tapering demand in China and elsewhere as steel mills feel the effects of the global financial crisis have left miners worldwide attempting to gauge next year's outlook.

Fortescue last week reduced its sales target to Dec. 31 by 2 million tonnes to 20 million tonnes to perform work on its export terminal in west Australia.

Forrest has said orders for the company's ore remains strong and its relationships with customers robust.

In the past two years, China, which makes more steel than any other country, has rushed to provide seed capital and sign supply agreements with an army of outback start-ups to ensure a steady stream of richer Australian ore to its mills than it can provide from its own mines.

Fortescue, whose stock has dropped to A$1.29 from A$12.70 in July, this week denied reports it was it was in talks to sell a stake in the company to the Chinese sovereign wealth fund, China Investment Corp. [ID:nSYD69040]

Forrest, whose family owns about 36 percent of the company, was briefly crowned Australia's richest man, worth about A$7 billion as Fortescue's stock soared on expectations that China's hunger for iron ore would continue to grow. His fortune has since dropped to around A$1 billion.

Fortescue on Thursday also reported a "trading profit" of A$360 million ($232 million), based on sales of 6.8 million tonnes of ore, for the three months to end-September, but did not give a comparison. ($1=A$1.550) (Reporting by James Regan; Editing by Lincoln Feast)