January 30, 2019 / 11:02 PM / 6 months ago

UPDATE 2-Fortescue says Vale impact uncertain, sees demand for mid-grade iron ore

(Recasts, adds Chief Executive comment, analyst comment)

By Melanie Burton

MELBOURNE Jan 31 (Reuters) - Australia’s Fortescue Metals Group Ltd said on Thursday it was too early to determine the full effect of a Brazilian mine disaster on iron ore supply, as its shares rose to a 16-month high.

“We are not 100 percent clear yet on the net impact on supply of iron ore, but certainly there will be some impact,” Chief Executive Elizabeth Gaines said, adding that the miner had offered its condolences.

“It’s a terrible tragedy and we really do feel for everybody at Vale and in the community.”

Shares in iron ore miners have surged after Brazil’s Vale SA said it would take up to 10 percent of its output offline in the wake of a catastropic tailings dam collapse that killed at least 85 people.

The loss of about 40 million tonnes of annual supply is expected to boost demand for Australian ore.

Fortescue, the world’s fourth largest iron ore miner, on Thursday reported a 5 percent rise in its second-quarter iron ore shipments and said it was experiencing strong demand for its new mid-grade ore product.

“We do believe that Fortescue to be a key beneficiary of elevated iron ore pricing resulting from the Feijão dam disaster,” Clarksons Platou analyst Jeremy Sussman in a report.

“We think there will be more demand for mid-grade ore.”

Fortescue, formerly a supplier of less popular low-grade ore, has started shipping a mid-grade product to improve its margins, just as lower steel prices have turned some Chinese steel makers away from the most expensive highest grade products.

“We have got now a 60.1 percent product and we are seeing very strong demand,” Gaines told Reuters.

Fortescue received 67 percent of the benchmark Platts 62 CFR index for a second consecutive quarter in December, when it began shipments of its West Pilbara Fines product to customers in China in a bid to improve its margins.

The miner said it expected to deliver 8-10 mt of the new product in fiscal 2019, and once its Eliwana mine and rail project is completed by December 2020, it expected to supply about 40 million tonnes of the product a year.

Overall, the world’s fourth-largest iron ore producer said it shipped 42.5 million tonnes (MT) in the three months ended Dec. 31, up from 40.5 mt a year ago. That was inline with an average consensus of three analysts (Macquarie, RBC, and Clarksons) at 43 million tonnes.

The miner maintained its fiscal 2019 shipment guidance at 165 million to 173 million tonnes, although Gaines said the miner remained “agile” around responding to market conditions.

It incurred slightly higher costs in mining ore during the quarter, as compared to the same period last year.

Fortescue shares closed up 4.2 percent at A$5.65 and have risen about 18 percent so far this week.

Reporting by Melanie Burton, additional reporting by Ambar Warrick and Nikhil Kurian Nainan in Bengaluru; Editing by Richard Pullin

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