The iron ore market may have bottomed as demand from Chinese steelmakers recovers, driving prices for the raw material higher, according to Fortescue Metals Group Ltd., Australia’s third-biggest producer.

“We are starting to see some evidence that the bottom of the depressed state has been reached,” Graeme Rowley, executive director of public policy and corporate affairs, said today. “We are seeing a comeback in the prices.”

The economy in China, the world’s biggest iron ore user, expanded at the slowest pace in seven years in the fourth quarter as the global recession hurt export demand and steelmakers cut output. The government has unveiled a 4 trillion yuan ($585 billion) stimulus package to counter the slump.

“The worst is behind us but it’s too early to say demand is recovering,” said Song Jae Hak, an analyst at Woori Investment & Securities Co. in Seoul. “Demand could increase from time to time. It still looks bad for the whole year.”

Fortescue rose 2.3 percent to A$1.77 at the 4:10 p.m. Sydney time close on the exchange. The stock has slumped 71 percent over the past year as commodity prices plummeted.

“We have order books full all the way through to March,” Rowley told journalists. Fortescue received an average price of A$96.63 ($62.60) a metric ton for ore in the December quarter, up 9 percent from the September quarter.

‘Real Demand’

Fortescue joins Australia’s Atlas Iron Ltd. and Taiwan’s China Steel Corp. in forecasting a rebound. Atlas said last month the market may have reached bottom as China’s stimulus package spurred a recovery in “real demand,” while China Steel said it expected an improvement from the second quarter.

China imported 6.2 percent more of the steelmaking ingredient in December than November, while stockpiles as of Jan. 9 were 22 percent below a September record, according to the nation’s customs. The Baltic Dry Index, a measure of shipping costs for commodities, rose for an eighth day yesterday on stronger demand for capesize vessels to haul iron ore.

Fortescue may ship 17.6 million tons of iron ore in the six months to June 30, it said today in a statement to the Australian stock exchange. Shipments in the three months to Dec. 31 were 6.3 million tons, down 8.7 percent from the previous quarter on a planned shutdown. It began producing ore in May.

Profit for the December quarter was A$607 million, up 19 percent from the previous quarter, Fortescue said today.

To be sure, Macquarie Group Ltd. analysts including Andrew Dale wrote in a Jan. 22 report on Angang Steel Co. that while “the perfect storm appears to have passed” for China’s second- largest steelmaker, iron ore prices may extend declines. “The outlook for raw materials is they will continue to decrease,” Dale wrote in the report..

Source: Bloomberg, January 30, 2009