Fortescue Metals Group (FMG) has lifted production and lowered costs, but seen its product suffer a bigger pricing discount during the December quarter as the global iron ore market has become more oversupplied.
It is a sign that it’s a buyers market with steel mills and traders able to pick and choose from very willing producers.
The miner said it shipped 42.1 million tonnes of iron ore in the December quarter from its mines in the Pilbara region of WA. That was narrowly better than the 41.9 million tonnes in the September quarter and 41.1 million tonnes in the December quarter of 2014.
Shipments for the six months to December were up by just a million tonnes at 84 million from the 83 million shipped in the six months to December 2014.
It said it remains on track and ahead of schedule to ship 165 million tonnes in the 2016 financial year.
Fortescue shares rose 4.1% to $1.52 after being as high as $1.575 yesterday.
FMG 1Y – Fortescue lifts production, lowers costs
Fortescue said its costs again fell, with the company claiming shipping ore at a “production cost” (excluding corporate costs like interest) of just $US15.90 per wet metric tonne.
That would put it in the same cost league as iron ore titans BHP Billiton and Rio Tinto.
Chief Executive Officer Nev Power said in yesterday’s statement, “Fortescue continues to deliver strong results, improving the productivity and efficiency of our operations and further cementing our position as a low cost, reliable supplier of premium iron ore products to our customers".
“The outstanding performance of our team combined with world class assets and effective strategy are driving sustainable improvements with production costs lowered for the eighth consecutive quarter. This continues to generate positive operating cashflows which has allowed net debt to be reduced to US$6.1 billion,” he said.
Fortescue’s iron ore has always sold at a discount to the benchmark iron ore price, but that discount rose in the December quarter compared with the September quarter.
September’s discount of 9% rose to 13% in the December period. In other words, Fortescue received 87% of the benchmark price for its ore in the December quarter against 91% in the previous quarter.
It said the price it received for the quarter was US$40.46 per dry metric tonne (dmt) (notice that the costs are in wet metric tonnes and therefore very hard to compare). That was down from the US$50/dmt Fortescue reported for the September quarter. Costs in that quarter were $US16.80 a wet metric tonne against $US15.80 a tonne.
A year ago production costs averaged $US28.48 a wmt in the December 2014 quarter, while the average price was $US63 a tonne and shipments totalled 41.1 million tonnes.
So the price fell nearly $US23 a tonne in the latest quarter from December 2014 quarter, while costs fell to $US15.80 from $US28.48 while tonnage rose by 800,000 tonnes. That clearly shows that Fortescue is heading for a sharp fall in earnings, all things being equal and excluding the $US124 million pre-tax gain made on the early buyback of $US750 million in debt.
The miner needs an iron ore price between $US35 per tonne and $US38 per tonne to break even, and iron ore was fetching $42.43 a tonne on Thursday (up more than 3%).
