09/10/2008 - 08:25

First cracks in iron ore boom

09/10/2008 - 08:25

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The global financial turmoil appears to have hit the once impervious iron ore market after Mount Gibson Iron Ltd said some of its customers wanted shipments delayed, but other producers remain positive about the outlook.

First cracks in iron ore boom

The global financial turmoil appears to have hit the once impervious iron ore market after Mount Gibson Iron Ltd said some of its customers wanted shipments delayed, but other producers remain positive about the outlook.

Mount Gibson today said it had received the requests from a number of its customers to delay the shipments of hematite iron ore during the second quarter of the 2009 financial year.

The company, which shipped 1.4 million tonnes of both lump and fines iron ore over the first quarter, said it was under no obligation to agree to the requests under the sales agreements.

It added that it would endeavour to reach an acceptable outcome to accommodate its customers

Shares in the company slumped 37.5 cents, or 32.5 per cent, to a low of 78 cents before recovering partly to close at 87.5 cents.

Calls by WA Business News to Mount Gibson were not returned at time of publishing.

Mount Gibson said customer and sector analysis had indicated that a slow down in demand for iron ore in China was a result of the economic uncertainty and tightening of credit facilities.

The view point was echoed by management at Fortescue Metals Group Ltd and Murchison Metals Ltd however both said the slow down had to be taken into context.

Murchison managing director Trevor Matthews said clarification was needed from Mount Gibson as to the size of the customers that made the requests.

He said that in Murchison's experience, there were no issues with shipments to larger customers such as Korea's Posco or China's Shougang, however there had been requests from its smaller customers for delays.

"We have received requests for delays, but it doesn't affect the company because the larger producers have stepped in to take the ore," Mr Matthews said.

Fortescue executive director Graeme Rowley said the slow down in demand could also relate to the quality of the product.

"We're starting to see the pressure you would expect from purchasers who are forced to be a bit selective with respect to the products they're getting," Mr Rowley said.

"The lump [iron ore] product is under pressure in China at the moment."

Mr Rowley added that lump iron ore is a premium product to fines.

He added that Fortescue is still powering ahead with its iron ore operation with all vessels scheduled for the rest of the year still going ahead and no indication that sales will be challenged in any way.

While there is evidence of a slow down in China's economic growth, both Mr Matthews and Mr Rowley said the country is still in a strong position

Mr Matthews said suggestions of a global recession are panic driven.

"As much as there are obvious concerns of what's going on globally and in financial markets, we're basing a lot of changes to the forecasts and predictions on about six to eight weeks data which is maybe not enough to form a conclusive view," Mr Matthews said.

"There's a fair amount of panic and concern of where things are headed; I'd like to see a month of two of data out of China before you start to form any views on which way they're heading."

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