Fortescue Metals Group production softens in March quarter, but it remains on track for record output
Fortescue on track for record iron ore shipments for the year as prices surge, despite weaker exports in the March quarter.
Fortescue Metals Group is on track for record iron ore shipments for the year as the price of the steel making commodity soars, despite weaker exports in the March quarter.
The iron ore price hit a record $US195.31 a tonne on Tuesday, according to Fastmarkets data, but slipped to US192.52 per tonne on reports China is set to relax import duties on pig iron, crude steel and recycled steel.
Fortescue said it shipped 42.3 million tonnes of iron ore in the March period, traditionally the slowest quarter for Pilbara producers due to the cyclone season. It realised an average $US143 a dry metric tonne for its products, up 17 per cent compared to the December period.
But its exports for the nine months to the end of March were up 2 per cent on the previous comparable period, putting Fortescue within easy reach of topping last year’s export record on 178.2 million tonnes.
The company will need to ship 45.3 million tonnes of ore in the June quarter to beat the record. It shipped 47.3 million tonnes in the June period in 2020. Fortescue maintained its 178 to 182 million tonne annual shipment guidance on Thursday.
But while the soaring iron ore price is bringing cash flooding in, the rising value of the Aussie dollar has lifted Fortescue’s costs.
Its average cash cost of production lifted 16 per cent to $US14.90 a tonne in the March quarter, impacted by the seasonal fall in export tonnages and the strengthening dollar.
Fortescue also upped its capital spending guidance for the financial year, adding $US400m to $US500m to estimates, to a new range of $US3.5bn to $US3.7bn.
The company did not update its expected final capital cost of the Iron Bridge magnetite project, where $US400m has already been added to its estimated capital costs. Fortescue said the revised budget and schedule for the project would be finalised by the end of May.
Fortescue chief executive Elizabeth Gaines said the quarter had been a strong one for the company, despite the impact of the Pilbara cyclone season, as its new Eliwana mine ramped up production.
Ms Gaines said the outlook for iron ore remained strong, noting that rain associated with Cyclone Seroja, which ripped through the mid west of WA in early April, had also slowed Pilbara operations.
“There’s still constraint on supply, whether that’s weather in the Pilbara region or whether that’s some of the challenges that Brazil continues to have with their operations. And with shipments being at the lower end of expectations we’re seeing constraint on supply and we’re seeing very strong demand. So those conditions continue to support the current iron ore price,” she said.
Ms Gaines said Fortescue was “mindful” of developments in the Chinese market, such as the relaxation of import duties on pig iron and scrap steel, but said she did not see any immediate danger of a structural shift in the iron ore and steel market.
“We have to be mindful that there could be increased utilisation of scrap but there is a lot of installed blast furnace capacity as well,” she said.
“And we’re seeing that extra capacity is well and truly being taken up as we’ve seen environmental restrictions impact other areas like Tangshan, and we are seeing very strong demand for steel and steel production.”
Macquarie Research analysts said Fortescue had put in a “solid” performance in the March quarter.
“Fortescue’s result was solid with key operating metrics in line with our estimates. The lower realised price was largely due to variances in product mix while the increase in capex guidance was largely anticipated,” Macquarie analysts said in a client note.
“FMG’s earnings upgrade momentum remains strong.”
Fortescue shares closed down 4c, or 0.2 per cent on Thursday, at $22.58.
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