The damage done to the revenues of iron ore exporters by the global slump in prices in the June quarter was there for everyone to see in yesterday’s production and exploration report for the three month period from Arrium (ARI), which ships ore from its mines near its steel plant in Whyalla, South Australia.
Arrium is a leading second tier iron ore exporter, along with the likes of Atlas (AGO). It ranks behind Rio Tinto (RIO), BHP Billiton (BHP) and Fortescue (FMG).
Arrium yesterday revealed that its average realised price for its iron ore shipments in the June quarter was $US85 a tonne (CFR, or including realised cost, freight and insurance), down a huge $US25 a tonne from the March quarter.
Arrium’s price fall was $US7 a tonne more than the $US18 a tonne fall in the Platts index price in the quarter (which is one of the main international pricing benchmarks for iron ore).
That bigger drop was due to Arrium shipping lower quality ore with an average iron content of up to 3% less than the index standard of 62%.
"Market prices were under pressure in the quarter due to factors including increased discounting related to additional supply, the tightening of credit in China and higher port stocks in China," Arrium explained in a statement yesterday.
The average price of $US85 a tonne in the June quarter is also down sharply on the average price for the full year of $US111 a tonne (on a CFR basis).
The company’s average fob price (free on board, not including freight and insurance) fell to $US71 a tonne in the year to June, from $US104 a tonne in 2012-13.
Arrium said its average costs per tonne (before royalties and tax) fell $A1.50 a tonne to $A45.90 a tonne in the June quarter.
With the $US25 a tonne fall in the average price in the quarter, Arrium faces a sharp contraction in profit margins and profits in the quarter, but the results for the 12 months to June 30 should still be impressive.
In the year to June, shipments were up more than 50% which will offset the slide in prices in 2014 which have been more than 30% to date.
But the price fall in 2014 has trimmed the sort of gains Arrium was looking at the December 31 half year mark.
Nevertheless, based on an average price of $US111 a tonne and shipping more than 12 million tonnes of ore in 2013-14, the company is looking at record iron ore revenues of more than $1.3 billion.
Despite that impressive figure, the size of the June quarter price fall and the impact on revenues was noticed by investors yesterday and Arrium’s shares dropped 3% to just 75.5c on the ASX yesterday.
ARI 1Y – Arrium shifts higher volumes of lower grade iron ore
The news more than offset the company’s news of record full-year shipments for the 2012-14 financial year.
In the three months to June 30, Arrium shipped 3.16 million tonnes of ore, which lifted full-year shipments to a record 12.5 million tonnes, up 54% on the previous year.
Arrium said it also achieved record June quarter sales of 3.32 million tonnes.
Despite the price fall, the company now expects a first-quarter annualised shipment rate of 13 million tonnes in fiscal 2015, a slight upward revision from the previous guidance of 12.4 to 12.5 million tonnes.
The year to June will be last when Arrium sees surges in export volumes and revenues, even though global prices fell.
Arrium’s sales growth will slow dramatically in 2014-15, with exports plateauing at around 13 million tonnes.
It’s quite likely that if prices maintain their current level of around $US96 a tonne, the company will see a fall in gross revenues from iron ore shipments this financial year.
Fortescue is in a similar situation to Arrium where it saw a 54% jump in iron ore exports in the year to June, which will be more than enough to offset the fall in prices. But this year could be tougher.
And that’s what faces the likes of BHP and Rio Tinto in the half and full year to June 20.
For example, some analysts are already forecasting big drops in revenues and profits (14% or more) for BHP for the year to June.
