Iron ore miner Fortescue has joined larger rival BHP Billiton in forecasting a near-term moderation in iron ore prices, downplaying the rally that has helped it boost profits and lift shareholder payouts.
The company, which on Wednesday reported that its half-year net profit nearly quadrupled, said while medium term demand factors in China remained strong, the recent surge in iron ore prices was unusual.
"The price has increased quite significantly and its also on the back of increasing stockpiles, which is quite unusual," Fortescue chief executive Nev Power told reporters.
"I think we will see it moderate to more historic levels, because it just seems to be driven by short term market right now.
"We will also see supply side reforms in China start to impact on that."
His comments echoed BHP Billiton's chief executive Andrew Mackenzie, who a day earlier forecast a near-term downside risk for prices of iron ore and metallurgical coal.
Iron ore, which sunk to a decade-low at the start of 2016, doubled in value during the year after stimulus measures in China boosted demand.
Its price has continued to climb over the last two months, defying analyst expectations of a correction, and currently trades at $US95 a tonne.
The soaring prices helped Fortescue report net profit of $US1.22 billion ($A1.59 billion) for the six months to December 31, up from $US319 million a year ago.
Analysts had expected the world's fourth-biggest iron ore exporter to report profit of around $US1.1 billion.
Fortescue had used the downturn in the industry to align its cost structure with larger rivals BHP, Rio Tinto and Brazil's Vale and used the additional cashflow from the recent price rally to speed up its debt repayments.
The miner said average cash costs for the six months nearly halved from a year ago to $US13.06 a tonne, while net debt was down to $US4 billion, well below its target gearing ratio of 40 per cent.
The company will continue to prioritise debt repayment, but will review its target payout range at the time of the full year results, based on market conditions, Mr Power said.
Fortescue delivered a sharply higher interim dividend to 20 cents a share, fully franked, compared to three cents a year earlier. The payout was within its 30 to 40 per cent payout range.
Mr Power said the company is mulling development of tenements for other minerals, but said no major spending had been allocated for this purpose yet.
He also confirmed that a potential tie-up between Fortescue and Vale for blending their iron ore for the China market is off the table for now, with talks between the two companies not progressing.
At 1528 AEDT, Fortescue shares were down 2.7 per cent at $6.97 a share, but are now worth three and a half times their value 12 months ago.
FORTESCUE PROFIT SOARS
* Net profit $US1.22b vs $US319m
* Revenue $US4.49b, up 34 pct
* Interim dividend of 20 cents a share, up from three cents
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