Fortescue says output boost fuelled by rising prices

Fortescue Metals Group, Australia's third-biggest producer of iron ore, said second-quarter shipments rose 9.4 per cent as production benefited from higher prices and increased demand from steel mills.

Shipments were 9.9 million metric tons in the three months ended December 31, from 9.1 million tonnes a year earlier, Perth-based Fortescue said yesterday. UBS AG's forecast shipments of about 10 million tonnes.

Fortescue is spending US$8.4 billion ($10.9 billion) expanding its operations in the Pilbara region in Western Australia to almost triple output. The project will boost annual capacity to 155 million tonnes from 55 million tonnes.

The expansion will include the building of a new mining hub, construction of 550km of railroad and expansion of facilities at Port Hedland.

Production costs rose 19 per cent from the previous quarter to US$41.50 a tonne, partly because of the rising Australian dollar, the company said. The Australian dollar gained 16 per cent in the December quarter against the dollar.

Fortescue had US$2.37 billion in cash at the end of the quarter, from US$1 billion in the previous three months.

The spot price of ore shipped to China, a benchmark used to help calculate quarterly sales prices used by shippers, jumped 21 per cent in the quarter and 43 per cent over 2010, according to the Steel Index.

The price will average 21 per cent higher this year and may rise to as much as US$250 a tonne, Credit Suisse Group analysts said in a report earlier this month.

- BLOOMBERG