UPDATE 1-Fortescue lifts iron ore output but warns of weather disruptions
* Fortescue lifts quarterly iron ore output 43 pct
* Warns heavy rains could dampen 2nd half shipments
* Says switch in China to more imported ore supporting price
By James Regan
SYDNEY, Jan 30 (Reuters) - Fortescue Metals Group on Thursday said it saw a rise in demand for its iron ore in the December quarter after posting a 43 percent rise in quarterly output, but warned production in the full year could be disrupted by bad weather.
Total shipments rose to 28 million tonnes in the quarter ended Dec 31, up from 19.6 million a year ago and 25.9 million the previous quarter, Fortescue said, in line with analysts' expectations.
"In the markets we are continuing to see strong demand from our customers across Asia and particularly China, with a net realised price of $125 a tonne, up from $121 a tonne in the previous quarter," Fortescue Chief Executive Nev Power said.
The world's fourth-biggest iron ore producer also revised fiscal 2014 shipments ending June 30 to the lower end of guidance at 127 million tonnes, citing interruptions caused by a cyclone in late December and heavy rains at its mines since then.
"Obviously guidance is dependent on weather and we have experienced some significant delays, with a very wet January," Power said. "We've had extremely heavy rainfall at a number of our sites."
The company's main Cloudbreak mine was saturated with 500 millimeters of rain over a single week, he added.
Fortescue's drive to lift production comes as its main market China is tipped by some to weaken, raising questions over iron ore's continued resilience as other commodities crumble.
A Reuters poll suggests iron ore prices are set to test five-year lows after hitting a six-month trough in January, as rising global supply combines with slower growth in Chinese steel output
But Power said data showing Chinese imports of iron ore growing at 10 percent last year against 8 percent growth in steel production, pointed to rising demand from the seaborne market, and supporting prices.
"The stability we have seen in the iron ore price reflects the increased seaborne supply replacing the higher cost domestic production (in China)," Power said.
"As the supply curve continues to flatten and the new low-cost production, such as ours, comes on stream, we expect to see increased stabilisation in prices," he said.
Australian miners are in the midst of multi-billion dollar expansion work to dig hundreds of millions more tonnes of ore in the next few years.
Rio Tinto and BHP Billiton lifted December quarter output 7 percent and 16 percent respectively.
Power sees the best defence against a sharp drop in iron prices in cost cutting. The company is adding to a fleet of driverless trucks to cut its payroll and is in talks with other miners to piggyback on its extensive rail haulage lines in the Pilbara iron ore belt.
Production costs remained reasonably steady at around $33 a tonne in the last quarter, and the company has cut full-year costs guidance to $34 a tonne to reflect a fall in the value of the Australian dollar, he said.
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