Diggers & Dealers: Fortescue CEO sees ‘uncharacteristically strong’ iron ore price

Nev Power

Fortescue Metals Group chief executive Nev Power expects the volatility in the iron ore market to settle over the next six to 12 months.

The iron ore price surged again in Monday trading, with the spot price for 62 per cent fines improving by 2.8 per cent to $US76.17 a tonne, its highest mark since the first week of April.

This follows last week’s 7.2 per cent increase, the largest jump in value since November 2016. In June, iron ore was trading at just $US53 a tonne, but it is now only 3 per cent from its 2017 high.

Iron ore’s volatility, and recent rise, has occurred despite forecasts it would average $US55 a tonne in the second half of 2017.

Speaking at Diggers & Dealers on Tuesday, Power said even with the volatility in the iron ore marketplace, the commodity had traded “within a reasonably consistent band for the last 18 months to two years.”

“We have seen recently port stocks climb quite significantly and that has created enormous volatility,” Power said.

“Over the next six to 12 months ahead we will see those port stocks start to come down and reduce some of that volatility in the market.

“I do think it is a challenge of the mining industry though that we do need to be working on mechanisms to try and smooth out a lot of that volatility.”

As for the recent increase in value, Power conceded the price is perhaps “uncharacteristically strong”. Power said this had been driven by China’s significant intervention of its steel industry.

He explained that 50-60 million tonnes (Mt) of steel production had been shut down in China because of illegal medium-high frequency induction furnaces.

Power added: “We have seen mills (in China) try to improve their productivity and production to a maximum.

“That has pushed the price of high grade iron ore up because steel mills are less worried about costs and more worried about the margin of producing that very high price rebar.”

Power believes as long as the intervention in China lasts it will be reflected in the iron ore price.

“We have seen the iron ore price trading above where you would expect it to on the cost curve,” Power said.

“So I don’t think it is going to change dramatically but over time I do think it will come back to more normal levels. Let’s enjoy it while we can.”

Fortescue announced in late July that it hit its iron ore shipments target for the 2017 financial year. The Perth-based company reported shipments of 44.7Mt in the June quarter and 170.4Mt for fiscal 2017.

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