Iron ore price, page-8806

https://www.theaustralian.com.au/bu...e/news-story/f3dcd4ea1da71bf91400b342ea546c41

Sentiment turns for Fortescue

The dramatic drop in margins across Chinese steel producers in recent weeks should drive up demand for Fortescue Metals’ lower grade iron ore material, according to the mining company’s head of sales.

Speaking at a media tour of Fortescue’s Pilbara iron ore operations yesterday, Danny Goeman — Fortescue’s recently appointed director of sales and marketing — said the turn in sentiment within China had prompted a sharp fall in the profitability of Chinese mills.

“That’s expected to further encourage consumption of low Fe iron ore and we’ve seen that in the last few days — there’s been a significant increase in interest in low Fe products which is supporting not just our demand but also our realised prices in relation to the 62 per cent index,” Mr Goeman said.

Fortescue shares have been buffeted this year by a widening gap between the price it receives for its mostly lower grade iron ore production and the price that its big rivals receive for their higher grade output.

Chinese steel mills have been seeking higher grade material for most of the past year, in part to maximise their production in what up until recently had been buoyant market conditions in China.

But Fortescue yesterday noted that margins in the Chinese steel industry had fallen from more than 1000 renminbi a unit earlier this year to less than 400 renminbi in recent days after the sharp turn in sentiment.

“Our price realisation goes up as rebar margins come down. We have really seen that in the last few weeks, and we’ve seen in the last few days where our realised prices keep on improving as the rebar margins deteriorate further,” Mr Goeman said.

“Clearly steel makers are responding to prevailing market conditions.”

Despite the shifting dynamics, Fortescue is continuing to push ahead with its plans to develop a higher grade iron ore product.

The company plans to send its first two shipments of new higher grade West Pilbara fines product in December, and is developing plans to lift its output of the material to 40 million tonnes per annum in the longer term. The company currently producers around 170 million tonnes a year.

The Andrew Forrest-backed producer is also closing in on a decision over whether to go ahead with the development of its Iron Bridge magnetite joint venture.

Fortescue has previously said it was aiming to make a decision by the end of this year, but chief executive Elizabeth Gaines yesterday cautioned that it also relied on its joint venture partners to meet that timetable.

Fortescue is also pushing ahead with the development of its $US1.275 billion ($1.76bn) Eliwana mine, which will produce 30 million tonnes a year of iron ore and replace the ageing Firetail mine.

Chief operating officer Greg Lilleyman noted that Eliwana would be far cheaper to build than the same sized Firetail mine, given Eliwana’s design involved a much smaller footprint with less steel and cement. It will also incorporate a second-hand mining camp and power station picked up at heavily discounted prices from neighbouring resources projects.