* Dec qtr shipments 19.6 mln tonnes vs 14.8 mln yr ago
* Fortescue boosting output to annual 155 mln tonnes by end 2013
* Short list of potential buyers for port, rail stake due in 4-5 weeks
By James Regan
SYDNEY, Jan 24 (Reuters) - Fortescue Metals Group, the world's fourth-largest iron ore miner, lifted shipments by 32 percent in the December quarter from a year ago, nearly all bound for Chinese steel mills.
Australian miners, led by Rio Tinto and BHP Billiton , are ramping up production of the steel-making ingredient, banking on their lower-cost operations to see them through any softening in demand growth from Asian consumers.
Fortescue's shipments climbed to 19.6 million tonnes in the three months to Dec. 31, 2012, from 14.8 million in the corresponding period a year ago, the company said, meeting analysts' expectations.
Fortescue said it expected volatile market conditions in China to stabilize in the near term.
"Steel mills are readjusting their raw material stocks to maintain more sustainable stock levels. With China's new leadership starting to rejuvenate programmes of economic growth and urbanization, steel demand is expected to increase and support iron ore prices," the company said in a statement.
Fortescue, which carries around $12 billion in long-term debt, last month reinstated expansion work on its Kings deposit after deferring it earlier in the year when iron ore prices halved to less than $90 a tonne.
A recovery to nearly twice that price in recent weeks led the company to restart the project, which will add 40 million tonnes a year to Fortescue's overall yield and enable it to reach its 155-million-tonne target.
"The scale benefit of adding these low cost tonnes is expected to significantly reduce Fortescue's overall cost of production," the company said.
In the final month of 2012, the company was producing at the annualized rate of just over 100 million tonnes.
Fortescue, which sells its ore at a roughly 12 percent discount to the benchmark spot price said its cash mining costs rose to an average $50.48 per tonne in the December quarter from $46.35 in the same period a year ago as higher cost inventories flowed through and the Australian dollar held strong.
Fortescue shares slipped 0.5 percent, underperforming a slight rise in the broader index.
Earlier this week, BHP, the world's biggest mining company, boosted its iron ore output by 3 percent in the December quarter, while Rio Tinto recorded a 6 percent lift.
Fortescue Managing Director Nev Power told a media conference call the company expected to have a short-list in four to five weeks of potential bidders for rail and infrastructure assets it is trying to sell.
Plans to sell a minority stake in its port and rail unit could provide the crucial link for at least four companies planning to start or expand production -- Atlas Iron, Brockman Mining, BC Iron and Flinders Mines .
Fortescue's rail line is considered its prized asset as it is the only iron ore railway built in Western Australia to challenge the stranglehold of the iron ore giants in Western Australia, Rio Tinto and BHP Billiton, which have not allowed other miners to use their rail lines.
Australia's No.3 iron ore miner could raise as much as $5 billion for a 49 percent stake, analysts estimate, but it would depend on how a deal is structured and what rate another owner could charge Fortescue and others to access the rail and port servicing the iron-rich Pilbara area.
Fortescue closed 0.64 percent lower at A$4.63, underperforming a firmer broader market.