Iron ore price to stay strong: Fortescue

'We don't see any conditions that would support a low iron ore price.' Nev Power, Fortescue CEO
By · 18 Oct 2013
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18 Oct 2013
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The surprise strength of the iron ore price should continue over coming weeks, according to Fortescue Metals Group boss Nev Power.

Speaking after Fortescue published its results for the September quarter, Mr Power said low iron ore inventories in China would not allow the price to fall dramatically in the near future, as some pundits had predicted.

Many observers tipped the iron ore price to crash during August, September and October, just as it did in the past two years.

UBS has forecast a flash slump to $US70 ($73) a tonne before October 31, based on the traditional time of year that Chinese steel makers wind back production after the northern summer.

But so far there has been no sign of a slump, with the benchmark price averaging a healthy $US133 a tonne during the September quarter. Rather than being influenced by seasonality, Mr Power said he believed price movements were mostly driven by the size of iron ore stockpiles in China.

"I know there is a lot of talk about seasonality but it seems to us that most of the iron ore price volatility has been driven by destocking and restocking cycles rather than any great seasonal effects," he said.

"We don't see any major changes to the position that has been there for a while. The iron ore stocks are still relatively low historically, and there isn't a large amount of room available for destocking. "That's not to say there can't be some short-term volatility but we don't see any conditions that would support a low iron ore price and certainly not for any period of time. Certainly not to the levels that some of the outliers are talking about."

Despite the bullish sentiment on prices, Fortescue shares fell 16¢ to $5.24 in the wake of the September results.

The 25.9 million tonnes exported during the September quarter keeps Fortescue on track to meet its full-year export guidance of between 127 million and 133 million tonnes, but was lower than some analysts had hoped for.

Production costs and capital spending were also within the guided range.

Mr Power said Fortescue had received approval from Australian and Taiwanese regulators for its lucrative magnetite deal with steelmaker Formosa.

He said there were no talks under way at present to sell a stake in the company's infrastructure assets.

But he remained willing to sell a stake should an appropriate offer be forthcoming.
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