Posted on 26 Oct 2011
Global iron ore prices, down nearly 30 percent since early September, could take months to recover as Chinese steel mills work off inventories, Australian miner Fortescue Metals Group said on Wednesday
China is the world's largest buyer of iron ore, gobbling up some 600 million tonnes annually, or about two thirds of the global seaborne iron ore market controlled by mega-producers Vale , Rio Tinto and BHP Billiton .
"We are seeing some short-term volatility because the steel mills are destocking in China," Fortescue Chief Executive Nev Power told a media conference. "It has been a little more hand-to-mouth than what it has been."
Power said Fortescue, which relies almost exclusively on sales of ore to China for revenue, held all its long-term contracts in place and that those sales were going through.
"It's really the shorter-term sales that are being shifted around and changed," he said.
Asked how long Chinese steel mills would continue to draw on existing inventories of iron ore, Power said: "Probably a matter of weeks, maybe stretching to a couple of months."
Spot iron ore prices slumped more than 7 percent on Tuesday in the deepest decline ever for the steelmaking raw material on thin demand from top importer China, where slower growth has dented steel consumption.
Power said weakening Chinese steel prices were contributing to a reluctance by mills to immediately replenish stockpiles of iron ore.
"The steel prices have come down in China, particularly the rebar price, and that is causing some pain with the steel mills."
Fortescue also on Wednesday said it had raised $1.5 billion of senior unsecured notes to help pay for mine upgrades.
The offering, which was initially launched at $1 billion, was increased to $1.5 billion due to strong demand, the company said.
Counting on strong demand for its ore in years to come, Fortescue has accelerated a 2014 expansion target of mining 155 million tonnes by a year.
"We see continued strong growth, and that is going to be driven by the continued urbanisation of central and western Chinese provinces, which are largely undeveloped and lack infrastructure at this stage," Power said.
The notes, which have an eight-year term with a non-call period of four years, will pay 8.25 percent a year.
Fortescue shares rose 0.7 percent in afternoon trade, slightly outpacing a 0.3 percent rise in the overall market .
