Fortescue quarterly iron ore output up 8 pct, expansion on track

Fri Jul 15, 2011

* Fortescue says will ship 12 mln-12.5 mln tonnes iron ore in current quarter
* Says operates at 60 million-tonnes-per-year rate in June
* Average selling price in June quarter $158/dry tonne cfr
* Shipments in current quarter constrained

SYDNEY, July 15 (Reuters) - Fortescue Metals Group , Australia's third-largest iron ore miner, reported an 8 percent rise in June quarter production to 12.38 million tonnes from a year ago and said expansion work was on track to almost triple output over the next two-and-a-half years.

Total shipments in the June quarter, which typically lag production, rose 6 percent to 11.5 million tonnes and are expected to rise further to between 12 million and 12.5 million tonnes in the current quarter, Fortescue said in its quarterly production report.

Shipments in the current quarter were being constrained despite the forecast increase in shipments due to work on the company's port operations, according to the company.

Fortescue is one of several iron ore miners in Australia pushing up production to meet strong projected demand for the steel-making raw material in Asia.

Rio Tinto, Australia's largest producer, on Thursday said it had lifted its June quarter production by 12 percent as it targets full-year output of around 244 million tonnes. BHP Billiton is also expected to show a rise in quarterly output when it reports production on July 20.

Fortescue in June said it plans to speed up its expansion to 155 million tonnes of ore, originally set for 2014, by a year and has been progressively lifting its production rate, which reached 60 million tonnes a year in June, according to the company.

Fortescue said it sold its iron ore at an average price of $158 pre dry tonne, CFR, meaning that as the seller it pays cost and freight versus costs averaging $53.23 a tonne.

Nev Power, who succeeds Fortescue founder Andrew Forrest as chief executive on Monday, reiterated the company's expectations it will be three to five years before global iron ore prices are likely to soften in a conference call with media.

"While we do not see a specific date in terms of a turnaround, I think it will be a gradual increase in supply meeting demand and we will see some softening in prices... probably a three-to-five-year time frame," Power said.

The price represents a reduction on the $162 per dry tonne average selling price in the previous quarter. Fortescue said this was due to a slightly lower average index reference price and a varied product mix of ore during the June quarter.

Key iron ore indexes, based on spot transactions in China, rose to near one-month highs on Wednesday, with forward swaps also climbing on hopes spot prices will remain high

Iron ore with 62-percent iron content was currently quoted at $174.10 a tonne by the Steel Index . A similar price gauge by Metal Bulletin gained 50 cents to $173.07

The two indexes, based on spot transactions in China, have been rising since July 1, after a fall to three-month lows in late June.

Fortescue sells most of its ore to steel mills in China but has said it would like to see 25 percent of sales to non-Chinese buyers in coming years.

Fortescue shares were down 1.4 percent to A$6.34 at 0309 GMT, outpacing losses in the wider market .