Aussie iron ore company to produce higher grade product to meet China's demand

SYDNEY - Australia's iron ore company Fortescue Metals Group Chief Executive Elizabeth Gaines has confirmed the Aussie miner will begin producing a new higher grade iron ore product in response to demand from China.

Gaines made the announcement at the company's annual meeting on Thursday, stating that production will commence next month.

Gaines said the new 60 percent iron product would comprise a blend of ore from Fortescue's Firetail mine and newly developed areas to the west of its Cloudbreak mine in the Pilbara.

The company intends to ship the new product at a rate of between 10 and 20 million metric tons a year, ramping up to 40 million tons by the end of 2020.

A crackdown on pollution in China has led to discounts on much of Fortescue's standard 58 percent iron output, with steel mills pursuing a higher grade, less polluting product.

Recent high steel mill profitability has also allowed producers to afford steep premiums for higher grade ores, leading to an even greater difference in price across varying grades.

Gaines told media on Thursday that while environmental reforms played a part in determining price, the profitability of steel mills was still the main factor.

At 11:15 pm local time on Thursday, Fortescue's shares were up 0.085 points or 2.14 percent to $2.95 per share.