Fortescue Metals Group Ltd , Australia's third-biggest iron ore producer, said on Wednesday the closure of more Chinese domestic iron ore production is inevitable, helping the market to rebalance.
Fortescue also said increases in the quality of its iron ore and improving market conditions will bring its sales closer in line with benchmark prices.
Most iron ore is sold on seaborne-traded markets at varying discounts to benchmark indices, based on ore containing 62 percent iron.
Over the June quarter, Fortescue sold its ore at a 20 percent discount to the average 62 percent Platt's index owing partly to market volatility brought on by oversupply, Fortescue's marketing manager David Liu told a media conference.
Over the 12 months of fiscal 2014 to June 30, though, sales were made at an average of 86 percent of the Platt's price, or a 14 percent discount, according to Liu.
He said Fortescue expects global supplies to "rebalance" in the short term as port inventories in China recede, steel mills restock and higher-cost iron ore production leaves the market.
These factors combined with a transition to higher-quality ore blends means "realised prices are expected to range between 85 percent and 90 percent of the 62 percent Platts index going forward," Liu said.
Investors have been closely watching Fortescue's sales price and production costs as it pays down billions of dollars in debt after spending $9.2 billion to build debt-funded iron ore project.
In the June quarter, the cost of delivering ore to customers fell 8 percent to $49 a tonne. For the full year, the delivered cost averaged $52 a tonne, according to Liu.
Fortescue stock was up 4 percent at A$4.47 versus a near 2 percent decline in the wider market .
Sourcr: Shanghai Metals Marrket
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