UPDATE 1-Australia's Arrium sees strong iron ore demand, shares jump

Mon Aug 18, 2014 9:54pm EDT

Related Topics

* Annual iron ore production up 51 pct

* Iron ore cash costs at A$48 a tonne beat company forecast

* Shares jump 9 pct outpacing broader market (Adds production, cost details, share price reaction)

SYDNEY, Aug 19 (Reuters) - Australian steel maker and iron ore miner Arrium Ltd posted an 83 percent jump in annual underlying profit as its iron ore output rose by more than half, and said it expected demand for seaborne iron ore to remain strong.

Its shares jumped 9 percent on Tuesday to a two-week high after it reported the results, which were ahead of market forecasts as iron ore production costs fell and it cut debt.

The mining and materials group said it expects iron ore prices, which have fallen 31 percent this year, to improve as stocks of lower quality ore that have come on to the market following expansions by Fortescue Metals Group and Atlas Iron are absorbed.

"The demand for seaborne iron ore is expected to remain strong due to continued growth in crude steel production in China and declining production of higher cost Chinese ores," Arrium said, matching comments by the world's top three iron ore miners, Vale, Rio Tinto and BHP Billiton.

BHP will release its full-year results later on Tuesday and is expected to report a 22 percent rise in annual proit, buoyed by higher iron ore volumes and sharp cost cutting.

Arrium's underlying net profit for the year ended June 30 of A$296 million ($276 million) compared with A$162 million a year ago. That was slightly ahead of the A$289.6 million average forecast of analysts surveyed by Thomson Reuters I/B/E/S.

Its full year dividend of 9 cents a share was also slightly higher than forecasts at 8.6 cents.

Iron ore sales rose to 12.5 million tonnes, while iron ore cash costs fell to A$48 a tonne compared with the company's forecast of A$50 a tonne. It said it expects those costs to hold at around A$48-A$50 a tonne in the year to June 2015.

Arrium last month posted record full-year shipments of iron ore with the completion of an A$86 million magnetite project. It said it expects to hit a production rate of about 13 million tonnes a year in the current quarter.

The company has been focusing on iron ore growth as its steel business remains under pressure from foreign competition, due to the strong Australian dollar and high domestic costs against a backdrop of weak construction demand.

Arrium said profit margins in the steel business were likely to remain under pressure in the first half of the current financial year, but it expected sales volumes to improve as infrastructure and residential construction pick up.

(1 US dollar = 1.0728 Australian dollar) (Reporting by Jane Wardell and Sonali Paul; Editing by Richard Pullin)

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