Steady Fortescue Trims Outlook

By Glenn Dyer | More Articles by Glenn Dyer

Fortescue Metals Group (FMG) has reported a slight rise in iron ore shipments in the three months to September, while it again cost costs but has been forced to trim its estimated price forecasts for the full year.

Fortescue is the world’s fourth-largest producer of iron ore and it said on Thursday that quarterly shipments rose to 44 million tonnes from 43.8 million tonnes in the first quarter a year ago.

Despite that small rise and the drop in costs, the shares dipped nearly 4% to close at $4.87 because investors also noticed that trimming of its forward price estimates that offset diverted attention from the drop in costs.

Normally news of a cut to Fortescue’s costs is usually enough to encourage investors, but yesterday’s reaction was a bit less forgiving.

Fortescue said its cash production costs averaged a record low $US12.15 per wet metric tonne over the quarter, 10% down on the year-ago period.

That encouraged Fortescue to maintain its cost target for the year at $US11 to $US12 per wet metric tonne.

“Investing in the long-term sustainability of our core iron ore business, maintaining production, further strengthening the balance sheet and generating shareholder returns remain our key priorities,” outgoing Chief Executive Officer Nev Power said in the statement. Power, who became CEO in 2011, retires next February.

Iron ore prices have dropped to around $US62 a tonne for 62% ore since mid-August as China starts winter cuts to steel output and as mine supplies from Australia and Brazil continue to rise. Coking coal prices have also softened.

Chinese steel output remained at near record levels during the quarter maintaining the strong demand for iron ore, Fortescue said.

The company’s average realised price during the quarter was 71% of the benchmark’s $US70.90 a dry metric ton. Based on current market prices, Fortescue trimmed its full-year price realisation guidance to 70% to 75% of the benchmark.

At the end of the June quarter, Fortescue had given price guidance of 75%-80% of the Platts 62 CFR Index price for the current financial year, although it expected prices at the low end or even slightly below that range in the short-term.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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