Iron ore market may have bottomed, Fortescue predicts

Production and Markets

The iron ore market may have bottomed as demand from Chinese steelmakers recovers, driving prices for the raw material higher, according to Fortescue Metals Group Ltd, Australia’s third-biggest producer.

“We are starting to see some evidence that the bottom of the depressed state has been reached,” Graeme Rowley, executive director of public policy and corporate affairs, said today.

“We are seeing a comeback in the prices.”  The economy in China, the world’s biggest iron ore user, expanded at the slowest pace in seven years in the fourth quarter as the global recession hurt export demand and steelmakers cut output. The government has unveiled a 4 trillion yuan (US$585 billion) stimulus package to counter the slump.

“The worst is behind us but it’s too early to say demand is recovering,” said Song Jae Hak, an analyst at Woori Investment & Securities Co. in Seoul. “Demand could increase from time to time. It still looks bad for the whole year.”

“We have order books full all the way through to March,” Rowley told journalists. Fortescue received an average price of A$96.63 (US$62.60) a metric ton for ore in the December quarter, up 9% from the September quarter.

Fortescue joins Australia’s Atlas Iron Ltd and Taiwan’s China Steel Corp in forecasting a rebound. Atlas said last month the market may have reached bottom as China’s stimulus package spurred a recovery in “real demand,” while China Steel said it expected an improvement from the second quarter. China imported 6.2% more of the steelmaking ingredient in December than November, while stockpiles as of Jan 9 were 22% below a September record, according to the nation’s customs.

The Baltic Dry Index, a measure of shipping costs for commodities, rose for an eighth day yesterday on stronger demand for capesize vessels to haul iron ore.

Fortescue may ship 17.6Mt of iron ore in the six months to June 30, it said today in a statement to the Australian stock exchange. Shipments in the three months to Dec 31 were 6.3Mt, down 8.7% from the previous quarter on a planned shutdown. It began producing ore in May.

(Bloomberg, Jan 30)