Fortescue shares jump as it flags balanced iron ore market

Shares in Fortescue jumped to a two-and-a-half-year high, after it expressed confidence in Chinese demand for iron ore.

Andrew Forrest, managing director and chief executive officer of Fortescue Metals Group Ltd., smiles as the first load of iron ore is loaded onto the company's ore carrier at Port Hedland in 2008. (Photographer: Ron D'Raine/Bloomberg News)

Fortescue Metals has seen its shares surge to a two-and-a-half-year high as it told investors the iron ore market was in balance, aided by China’s five-year plan to stir steel demand.

In an investor presentation today, the miner (FMG) tempered talk of an oversupply, saying Chinese demand for iron ore remained “robust” hours after the key Australian export struck a seven-week high.

“Demand for Fortescue ore remains strong,” the company said, noting it was driven by the property and infrastructure sectors in China.

“(The) iron ore market is in balance with low cost seaborne ore displacing domestic.”

The WA-based miner said realised prices had faced pressure, but were expected to improve.

The commentary came as the commodity rose 0.5 per cent to $US58.70 a tonne in the latest offshore session, the highest price seen since September 5.

Fortescue shares bounded 5.2 per cent to $5.375 by 2.20pm (AEDT) on the news, its highest mark since April 2014.

In its latest presentation, Fortescue added seaborne supply had slowed over 2015-16, but this year’s price recovery had brought high-cost supply, particularly in China, back into circulation.

This trend is seen as unlikely to continue as sector heavyweights Rio Tinto, BHP Billiton and Vale gradually ramp-up supply, with high-cost operators tipped to fall by the wayside.

“Supply additions in 2017/18 will be offset by exit of higher cost seaborne and China domestic,” Fortescue said.