KALGOORLIE, Australia, Aug 5 (Reuters) - Lower Chinese iron ore inventories meant prices were set to hold well above last August's record lows this year during the historically weak third quarter, Australia's no 3 producer Fortescue Metals Group Ltd said on Monday.
Iron ore plunged below $86 per tonne in August 2012 before slowly recovering later in the year.
"We don't see the same environment that created last year's drop," Fortescue Chief Executive Nev Power said on the sidelines of the Diggers and Dealers mining conference.
"There were very high stocks in both the steel mills and the ports last year and this year we are seeing below average port and mill stocks," he said.
Fortescue, whose second-biggest shareholder is Hunan Valin Iron and Steel Group Co Ltd, sells most of its ore to steel mills in China.
Iron ore with 62 percent iron content .IO62-CNI=SI, the industry benchmark, stood at $130.10 a tonne on Monday.
"I don't see any conditions for a significant drop for a long period of time," Power added, pointing to a strong demand outlook given average Chinese steel production rate of about 2 million tonnes a day.
He expected seaborne-traded iron ore to settle around $120 a tonne this year, well above Fortescue's forecast production costs of between $36 and $38 a tonne in fiscal 2014.
The miner boosted iron ore output by 41 percent in the year to end-June, nearing a target rate of 155 million tonnes a year by end-December. In June, it shipped at an annualised rate of 120 million tonnes, 5 million tonnes above target.
Iron ore exports to China from Australia's Port Hedland, which handles about a fifth of the global seaborne market, contracted in July after a couple of very strong months but remained sharply higher on a year ago.
Fortescue is the port's second biggest user after BHP Billiton .
Ore shipments to China were 20.4 million tonnes in July, compared with 22.9 million tonnes in June, data released by the Port Hedland Port Authority showed. But that was still up 37 percent on July last year.
Reporting by James Regan; Editing by Richard Pullin