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Fortescue banks on Chinese stimulus

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Fortescue Metals boss Nev Power is counting on the Chinese government’s stimulus measures to boost demand for iron ore after the price slump in the commodity saw its full year profit dive 88 per cent.

The miner, founded by Andrew “Twiggy” Forrest, made a net profit of $US316 million ($A433.29 million) for the 2014/15 financial year, a dramatic slide from last year’s $US2.74 billion result.

Iron ore prices have dived more than 30 per cent in the past 12 months and more than 60 per cent in the past two years as major producers continue to ramp up production as demand from China weakens.

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That’s caused serious trouble for small miners like Mount Gibson and Atlas Iron, which last week posted massive net losses, though larger players have had to share the pain as well.

BHP and Rio’s share prices have dropped one third and a quarter respectively in the past year while Fortescue, which has a heavy debt burden and relatively higher production costs has fared even worse, with its shares down more than 65 per cent.

The company’s shares dived 14 per cent on Monday, falling 28 cents to $1.635.

And there’s no signs of improvement yet, with BlueScope Steel boss Paul O’Malley on Monday saying steel demand in China had plateaued, forcing the country’s steelmakers to rely more on their exports.

Fortescue chief executive Nev Power said it was impossible to predict how iron ore prices would move in the next 12 months but was upbeat about the long term outlook for the commodity, especially in China.

He said China still had a lot of growth ahead and the central government’s efforts to stimulate the economy would boost demand for steel.

“There are about 300 million people still to urbanise and China’s economy is probably back where the US economy was back in the early 1900s or 1920s so to bring it up to 75 per cent or 80 per cent urbanised is going to take a lot of steel yet to come,” he said.

“We’re seeing a lot of signs of stimulus coming into the market. I think there is a recognition that they need to stimulate the economy and that will flow through to steel demand.”

China ramped up its stimulus efforts earlier this year by cutting interest rates and lowering capital reserve requirements for its major banks, but concerns about the outlook for the world’s second largest economy have reverberated through global sharemarkets in the past week.

-AAP

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