UPDATE:Australia Iron Export Growth Lags Sharply Higher Prices
October 14 2010 - 6:29AM
Dow Jones News
Iron ore shipped by Australia's Rio Tinto Ltd. (RIO.AU) and
Fortescue Metals Group Ltd. (FMG.AU) crept up 2% on year to 57.7
million tons in the third quarter, the companies reported
Thursday.
The relatively slow growth, at a time when iron ore prices
remain well above year-ago levels, illustrates the constraints
faced by producers in ramping up exports from Australia's
northwestern Pilbara region, responsible for around a third of
international iron ore trade.
The benchmark Platts iron ore index settled at $150.50 a metric
ton Thursday, compared with a $75/ton-$100/ton range a year
earlier.
In a report for the July-September quarter, Rio said iron ore
production rose just 1% to 47.6 million tons, from 47.0 million
tons in the same quarter last year.
Fortescue, Australia's third-largest producer of iron ore, was
expecting a drop in output, but said planned maintenance shutdowns
didn't cut output as much as expected, with the final figure
exceeding guidance of 9-10 million tons.
Along with BHP Billiton Ltd. (BHP.AU), the two companies account
for most of Australia's iron ore exports.
Rio Tinto said it would produce around 179 million tons of iron
ore in 2010, while Fortescue said the guidance would be in the
range of 40 million tons for it's fiscal year ending of June
2011.
Iron ore exports from the Pilbara have been constrained by the
limits of the region's infrastructure. Rio and BHP have separate
rail lines and port facilities for exporting ore from the iron-rich
region, and Fortescue has sued with limited success to secure
third-party access to that infrastructure.
Fortescue was forced to build its own rail line and port to
export iron ore from its Cloudbreak and Christmas Creek mines in
the Eastern Pilbara, and plans to spend up to $6 billion to expand
its operations.
A desire to make the most of the limited infrastructure in the
region was a motivation behind BHP's 2007 bid for Rio and a
subsequent proposal to combine their Pilbara operations, which is
believed to be facing resistance from competition regulators in
Europe and Asia.
"Our challenge is to ramp up volumes as quickly as we can," said
Russell Scrimshaw, Fortescue's executive director. "It certainly is
in our interest to accelerate expansion rapidly."
But that expansion is coming at a steadily rising cost.
Fortescue said its production costs continue to rise, increasing
8% to $34.83/ton in the July-September quarter from $32.25/ton in
the previous quarter.
Yet, strong demand and high prices are encouraging producers to
invest ever more in adding capacity.
Announcing its half-year results in August, Rio Tinto said it
would commit around $13 billion to capital spending by the end of
2011, with bulk of the money going into iron ore production,
principally in the Pilbara region and Guinea's Simandou deposit
which is being jointly developed with China Aluminum Corp.
"We approved more than $4 billion of capital projects during the
third quarter, including investment towards the expansion of our
Pilbara iron ore operations to 330 million tons per annum," Chief
Executive Tom Albanese said in a statement.
-By David Fickling, Dow Jones Newswires; +61 2 8272 4689;
david.fickling@dowjones.com