FMG 0.66% $16.61 fortescue metals group ltd

fortescue says demand for its product robust

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    Fortescue says demand for its product robustFont Size:

    November 13, 2008

    FORTESCUE Metals Group said demand for its product remains strong and its customer relationships are robust amid a downturn in China.

    The world’s two largest iron ore producers - Rio Tinto and Brazil’s Vale - have each cut annual output for the steel-making commodity by 10 per cent after weakening in demand in China.

    Fortescue chief executive Andrew Forrest today said the group was in a strong financial position and demand for its product remained strong, despite the "considerable" slowdown.

    "We have had a number of mills argue that their position is perhaps stronger than others and that they are looking for an increase in their share of Fortescue's production,'' Mr Forrest told reporters by telephone.

    "One mill, which has currently less than a five per cent share, a very major mill, is now seeking a 10 per cent share.

    "We just don't have the space in our shipping register to accommodate that, but of course in this market we will do everything we can.''

    Steel companies worldwide are cutting production amid the global financial crisis, weakening demand for iron ore, a key steel-making ingredient.

    Mr Forrest, who is in China meeting customers, also said there were no quality issues with Fortescue's iron ore and its relationship with customers is strong.

    The fragility of some customer relationships was exposed recently when Mount Gibson Iron Ltd was forced to seek a financial lifeline from its major shareholder after some customers defaulted on binding offtake agreements.

    "I can confirm that the diligence and the honesty and the energy to which Fortescue has pursued its customers' best interests is well recognised here,'' Mr Forrest stressed to journalists.

    "I do know that when we turn to our customers in these meetings and seek assurance, that it's not Fortescue ships which will be deferred or turned around.''

    Fortescue this week brought forward a planned shutdown to upgrade port and mine processing facilities at its West Australian operation, reducing calendar 2008 output by two million tonnes, or 10 per cent.

    The company also temporarily deferred plans to expand its WA operation to 80 million tonnes per annum, but expects to ramp-up to 55 million tonnes a year by the end of March, 2009, "subject to market conditions''.

    Mr Forrest said the deferred Pilbara mine activities were not time sensitive and could be picked up and completed next year.

    He said future mine expansions could be funded through internal cashflow, scotching rumours he was in China pursuing a potential capital raising.

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