Fortescue CEO: Iron ore volatility will blow over soon

Fortescue: Why we're not worried about China

Concerns over the use of commodities as collateral for loans in China has sparked recent volatility in iron ore prices, but the CEO of Australian iron ore firm Fortescue Metals Group expects concerns to blow over by year-end.

"From China we are still seeing very strong demand for our product," said Nev Power, CEO of Fortescue Metals Group.

"While there has been some volatility in iron ore prices due to these changes in credit, we expect it to flow through the market quickly and things to return to normal certainly by the end of this financial year," he added.

Worries over an economic slowdown in China – the world's largest iron ore importer – have contributed to the industrial metal's 21 percent year-to-date slump amid a lackluster performance in the nation's property market and expectations of tightening measures ahead.

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Reports that commodities like iron ore, copper and even soy beans are being used as collateral for financing deals in China, which first emerged earlier this year, have further exacerbated the sell-off as investors fret that a crackdown by Chinese authorities would dampen demand.

Last week, the Financial Times reported that Chinese authorities had taken steps to do just that, as the China Banking Regulatory Commission warned banks to tighten controls over letters of credit for iron ore imports.

But Power told CNBC it was a "normal course" for commodities to be used for some level of financing in an economy, and the fact that around 30 percent of stockpiles were being used as collateral was not a worrying figure.

"If you look at the port stockpiles in China [they stand] at 114 million tons of iron ore. That's still only a couple of weeks' supply, so it's not a significant proportion compared to the total use of iron ore," he added.

Read MoreChina plans crackdown on iron ore import loans

A driver inspects an earth mover at Fortescue Metals Group Ltd.'s Cloudbreak iron ore operation in the Pilbara region of Western Australia, on Monday, July 25, 2011
Bloomberg via Getty Images

As the world's largest iron ore importer, recent weak Chinese economic data has shaken investor confidence in metals firms like Fortescue, which is the third largest iron ore firm in Australia, but Power said worries had been overblown.

"China is right now in about the same [place] where the U.S. was 100 years ago in terms of its urbanization and development," he said.

"China has a long way to go, and we see three to four decades of demand for steel at around 800 to 900 million tons a year for China to achieve the same urbanization as the U.S. did," he added.

Power also commented on an issue closer to home: a potential tugboat worker strike over pay set for the middle of this month, which could block the exports of Australian iron ore producers for up to a week if it goes ahead.

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"All of our tons go out through Port Headland so any delays in the port would impact us directly…We are very hopeful that sense will prevail and there will be a negotiated outcome between these people and their employer," he said.

The CEO said he sees iron price staying around current levels of $105.90 per ton in the medium term.

"Fundamental supply and demand has said nothing has changed," he added.