Fortescue invests in larger vessels for iron ore shipments


FORTESCUE Metals Group will spend $US275 million ($292m) buying four specialist iron ore ships in a show of confidence amid continued iron ore price weakness. 

Fortescue said the four vessels would improve efficiencies and lower costs at Port Hedland, through which Fortescue ships all its iron ore production.

Fortescue said the ships, which will be built in a Chinese shipyard, would be much larger than the traditional Cape-size vessels that dominate the seaborne iron ore industry and were designed specifically for Port Hedland&rsquo s shallow harbour and tidal conditions. The ships will be delivered between November 2016 and May 2017.

The latest investment commitment comes at a volatile time for iron ore prices, which have fallen to their lowest levels in 21 months.

The benchmark iron ore price dropped to $US90.90 a tonne at the weekend, its lowest level since September 2012. The price has now fallen by almost 35 per cent since December last year.

Deutsche Bank yesterday became the latest broker to downgrade its iron ore price forecasts, trimming 2.6 per cent and 10.3 per cent off its 2014 and 2015 estimates respectively, while Morgan Stanley last week slashed its price forecasts for the next five years by 11 per cent to 21 per cent.

A strong rise in iron ore export volumes coupled with weaker Chinese economic growth has contributed to the price falls.

Patersons Securities analyst Rob Brierley said the larger cap­ acity of Fortescue&rsquo s new ships could help it maintain or lift its shipments out of Port Hedland even if other parties begin shipping out of the congested port.

&ldquo Everyone knows that Fortescue has significantly more ­ capacity than they do port allocation. It&rsquo s not an issue at the moment but sooner or later, if some of these other mines ever get up, they could be squeezed,&rdquo Mr Brierley said.

&ldquo One of the ways of mitigating the potential squeeze would be to have bigger ships.&rdquo

Fortescue chief Nev Power said the vessels would help lower freight costs and maximise iron ore export volumes.

&ldquo These vessels are a natural extension of our supply chain and will play a significant role in increasing efficiencies at the port and lowering costs,&rdquo Mr Power said. &ldquo They also reflect and strengthen our close relationship with China, our largest customer.&rdquo

The four ships will each be capable of carrying 260,000 tonnes of iron ore, which will rank them among the biggest ships servicing Port Hedland.

Last month, only three of the 202 iron ore shipments to leave the port carried 250,000 tonnes or more of iron ore and none carried 260,000 tonnes. Most of the ships carried between 170,000 and 220,000 tonnes.

Shares in Fortescue, which traded as high as $6.02 in February, closed unchanged at $4.06