We did well in an operationally challenging environment, said CEO John Sheridan. File photo by Sim Kih

On the demand side, even as China haggles for a lower iron ore price, its China Iron and Steel Association (CISA) is also predicting this year’s iron ore prices will likely increase in sharp contrast to 2009, when China’s cost of purchasing imported iron ore decreased 34.2% YoY.

Purchases by China, the world’s largest buyer of the commodity, are rising after economic growth of 10.7% in 4Q09 boosted demand for steel used by builders and manufacturers.

Upturn in Ausgroup's latest quarterly earnings (2Q2010).

"We continue to be bullish about the outlook for 2010,” Credit Suisse analysts led by Ivan Fadel wrote in a report issued last week.

"We estimate a 40% iron-ore price increase for 2010, with upside risk, due to a very tight seaborne market,” according to the analyst.

Does this spell a bottoming out in Australia’s mining infrastructure sector?

AusGroup, which is SGX-listed, saw its order book balloon by two-thirds to A$467 million as at end Jan 2010 (from A$280 million as at end Jun 2009).

And Ausgroup’s clients are bulwarks financially, such as BHP Billiton and Rio Tinto (both Australian), who together with Vale (Brazilian) control 66% of the iron ore market.
 
Ausgroup’s 1H2010 gross margins expanded 2.8 percentage points to 15.1% due to improved project execution and better timing in recognition of variation orders.

However, its CEO John Sheridan cautioned at its analyst briefing last Thu that while the company expects revenues to increase in the short term, margin pressures are expected.

Merrill Lynch estimates