Fortescue Metals Group says it is closely watching relations between China and Australia following the detention of four Rio Tinto staff as it forecasts a lift in demand in the short-term from Asian steel mills.
Fortescue Metals Group says it is closely watching relations between China and Australia following the detention of four Rio Tinto staff as it forecasts a lift in demand in the short-term from Asian steel mills.
Fortescue chief executive Andrew Forrest told a teleconference today that the controversy did not appear to be straining the iron ore miner's relationship with its customers in China.
He said Fortescue executive director commercial Russell Scrimshaw was currently in China, "ensuring that our deeply embedded relationship with the Chinese economy stays very strong".
"We are all aware of the sensitivities in China," Mr Forrest said.
"We are watching this situation very closely."
Mr Scrimshaw told the teleconference from China that there was obviously "difficult circumstances in China right now", with the continuation of the most protracted benchmark price negotiations on record.
Australian officials in Canberra and Beijing will seek more detailed information from Chinese authorities today about the circumstances surrounding the detention of the four Rio Tinto executives who were arrested seven days ago.
Mr Scrimshaw said Fortescue was exporting ore at the spot market price but would adhere to benchmark prices once they were set.
"If there is a benchmark, we'll adjust to that if and when it occurs," he said.
"We're comfortable that spot rates are in a good range for us."
Mr Scrimshaw also said while he expected ongoing volatility in iron ore demand from Asian steel mills, he flagged a lift in the short-term with Fortescue holding "a healthy backlog of orders" from Chinese steel mills.
"There has certainly been a strengthening of orders for us," he said.
"They (the steel mills) are producing in healthy volumes and most mills are doing reasonably well.
"We still have a healthy order book out over several months ... (and) feel quite positive about the medium term."
Fortescue said on Monday that its June quarter and full year iron ore mining rates had surpassed expectations, placing it on track to achieve a 45 million tonne (Mt) a year output.
The company said it mined 8.89 Mt of iron ore from two mines in the Pilbara during the June quarter, compared to its guidance in April of 7Mt.
For the financial year, Fortescue mined 31 Mt, modestly eclipsing its prediction in April of about 30 Mt, which had been revised downwards from a forecast in January of about 38 Mt after wet weather hampered operations during the March quarter.
Fortescue expects to maintain an annual output of 35 Mt until remedial works at its ore processing plant are implemented in the first half of 2010, when it will target a run rate of 45 Mt per annum.
Mr Forrest said it had been a "strongly improving quarter, capped by a strong month of June" both in terms of ore mined and ore shipped.
"There will be bumps along the road. We can take it as read that it is going to happen," he said.
"But cash costs will fall and volumes will continue to rise."
Fortescue chief financial officer Michael Minosora said strong progress was made in the June quarter to achieve a long-term cost per tonne goal of $25.
Cash costs for the period were about $29.50 per tonne, down from $38.61 per tonne in the year-to-date to March.
Fortescue began exporting in May last year.
Mr Minosora said the miner was one-third of the way through a 39-week program to cut costs by $400 million, with significant savings expected in the next two to three quarters.
Fortescue shares were up 12 cents at $3.52 at 1456 AEST.