Fortescue Lowers Iron Ore Price 35%

Darlington Musarurwa
17 Aug, 2009
New York City

Australian stocks declined after Asian markets and commodities prices fell. Copper led the decliners in the metals trading. Fortescue Metals offered 35% discount to Chinese steel maker, breaking the long impasse the discussion between Chinese steelmakers and Australian iron ore miners.

[R]1:00 AM New York, 6:00PM Sydney – Australian stocks declined after Asian markets and commodities prices fell. Copper led the decliners in the metals trading. Fortescue Metals offered 35% discount to Chinese steel maker, breaking the long impasse the discussion between Chinese steelmakers and Australian iron ore miners. Bluescope Steel reported wider than expected loss.[/R]

The benchmark stock index fell in Australia as commodity prices declined, despite positive remarks by Treasury Secretary and Fortescue Metals signing an agreement with Chinese steel makers to sell iron ore at 35% lower price than a year ago.

Australian stocks were weak after the regional markets in Asia fell. Despite a rebound in the Japan’s GDP growth, investors worried that the economy is still not on the sound footing.

In China, stocks fell sharply after copper imports in July dropped 15% from June and foreign direct investment declined for the tenth month in a row. The weak data dragged commodities lower.

Gold prices slipped 0.8% to $948.70 per ounce and crude oil prices plunged 4.5% to $67.5 per barrel.

In Sydney trading ASX 200 Index slumped 1.6% or 72.6 to 4,388.40.

Of the stocks traded on the ASX 200 index shares, 57 rose, 132 fell, and 11 were unchanged. Lynas Corp. led advancers in the ASX 200 index stocks with a rise of 15.2% followed by Gunns Limited increasing 8.2%.

Fortescue Slashes China Iron Ore Price by 35%

Fortdescue Metals Group reported today that it has agreed with Baosteel Group Corporation and China Iron and Steel Association (CISA) for an agreed China price of US$0.94 per dry metric ton unit of fine iron ore.

The agreed price is 35% lower than the year ago price and 3% lower than agreed between Japanese steelmakers and Rio Tinto. However, the iron prices are still 100% higher than four years ago.

A lump iron ore price of US$1/dmtu or US$61 per dry ton was also set. The agreement also commits Chinese steel mills to acquire approximately 20 million wet metric tons from Fortescue between July 1 and December 31 this year.

However, before the agreement become operational, Chinese financiers must complete financing the transaction by September 30, 2009 at an estimated cost of US$5 billion to US$6 billion.

For the past year, there has been an impasse between Chinese iron ore industry and Fortescue over prices.

Fortescue Metals Group chief executive officer Andrew Forrest said, “The ongoing market speculation has promoted unprecedented iron ore and steel price volatility, which in turn has created extreme production uncertainties for Chinese steel mills and for suppliers setting individual contracts with those mills.”

The price of steel in China has doubled over the past three months, but it has fallen by 20% over the past 10 days alone.

Australia Bullish on Economic Prospects

Australia’s Treasury Secretary Dr. Ken Henry said today in a speech to business leaders in Canberra the easing of both the fiscal and monetary policies has significantly influenced the strength of the economy.

Economists and traders are expecting Australia to revise upwards its economic growth forecast.

“It does appear as if the economy is behaving better than people were thinking late last year or early this year. We''re not rushing to judgment on this just yet. We need to be somewhat careful in prematurely declaring the war is over,” said Dr Henry.

He added that there was a possibility of second wave of economic stress in the near future.

New Zealand Service Industry Expands

Bank of New Zealand Ltd and Business New Zealand reported today that the country’s performance of services index, a leading indicator of the service industry increased to 50.1 in July from 45 a month earlier.

Gainers & Losers

Coca Cola Amatil, Australia’s biggest soft drink manufacturer rose 2.7% after the company noted that price increases from Pepsi and Scheppes brands by Asahi Breweries are expected to sustain operating margins.

Commodity stocks slumped after crude oil prices shed 4.5% to $67.50 per barrel and gold prices dropped 0.8% to $948.7 per ounce. Sundance Resources shed 9.8%, Minara Resources fell 7.6%, Murchison Metals 7.2% and Nexus Energy dipped 6%.

Earnings News

Nexus Energy reported today that its full year net profit advanced 84.7% to US$248.1 million on rising gold prices. In the period under review, the company closed its gold hedging exposure that cost US$235 million.

The company forecast gold production will rise to between 1.81 million and 1.91 million ounces in the current fiscal year, while copper output is expected to drop between 83,000 and 87,000 tons.

Net debt at June 30 dipped to US$84.1 million from US$291.1 million a year ago.

Boart Longyear Limited, an integrated provider of drilling services said first-half revenues fell 53% to $463 million from $985 million a year ago. Net loss in the first-half was $5.4 million or 36 cents per diluted share compared to net profit of $111.7 million 7.43 cents per share a year ago.

BlueScope Steel Limited, the steel manufacturer and distributor said full-year revenues fell 1.6% to $10.33 billion from $10.5 billion a year ago. Net loss in the year was $66.4 million or 7.1 cents per diluted share compared to net profit of $596.2 million 65.8 cents per share a year ago.

Leighton Holdings Limited, the construction company said full-year revenues rose 26% to $18.3 billion from $14.5 billion a year ago. Net profit in the year fell 28% to $444.0 million or 149.5 cents per diluted share compared to net profit of $607.9 million 218.6 cents per share a year ago.

Newcrest Mining Limited, the gold miner said full-year revenues rose 7.2% to $2.53 billion from $2.36 billion a year ago. Net profit in the year rose 84.7% to $248.1 million or 52.9 cents per diluted share compared to net profit of $134.3 million 30.7 cents per share a year ago.

PMP Limited, a printing company said full-year revenues were flat at $1.35 billion from $1.35 billion a year ago. Net loss in the year was $27.2 million compared to net profit of $78.9 million a year ago.

ASX 200 Index Movers

Sundance Resources Ltd led the decliners in the ASX 200 index of 9.7% followed by losses in Minara Resources Limited of 7.5%, in ING Industrial Fund of 7.5%, in Murchison Metals Limited of 7.2% and in Alumina Ltd of 7.1%.

Lynas Corporation Limited led gainers in the ASX 200 index with a rise of 15.2% followed by gains in Gunns Limited of 8.2%, in Infigen Energy of 8.1% and Transpacific Industries Group Ltd of 6.3%.