Fortescue Metals Group Ltd. said that it’s capping iron ore shipments, becoming the first of the world’s biggest exporters to quit the race to funnel fresh supplies into a market that’s marked by oversupply and tumbling prices.
“We don’t see any point in just continuing to drive any additional production,” Chief Executive Officer Nev Power said on Thursday after the world’s fourth-largest exporter reported full-year shipments jumped by about a third to 165.4 million metric tons in fiscal 2015. The company vowed to hold annual cargoes at around that level after completing expansions.
Iron ore slumped to the lowest since 2009 this month, joining commodities from crude oil to copper that retreated amid supply gluts. Fortescue joined Glencore Plc in criticizing rivals including Brazil’s Vale SA for continuing to drive iron ore expansions even as demand growth slows in China and prices drop. The projected output rate is less than Fortescue is capable of producing, according to Power, who said that the market is fully supplied. Fortescue shares dropped.
“This will slow the negative sentiment,” said David Lennox, a Sydney-based analyst at Fat Prophets. “It’s not enough to reverse what we are seeing in the marketplace at the moment for iron ore because there’s still future production coming into the market.”
Exports from Australia will expand 10 percent next year to 824 million tons, according to a forecast from the Department of Industry and Science in June. Shipments will be lifted by a new mine in the ore-rich Pilbara backed by billionaire Gina Rinehart that’s scheduled to start this half.
Ore of 62 percent delivered to Qingdao fell to $44.59 a dry ton on July 8, the lowest since at least May 2009. Compared with annual benchmarks that preceded spot trading, the July 8 price would be the lowest since 2005, Clarkson Plc data show. It lost 0.1 percent to $51.72 on Thursday, Metal Bulletin Ltd. data show.
Vale, the top producer, targets longer-term output of 450 million tons as Rio Tinto Group expands to 350 million tons by 2017. BHP Billiton Ltd., which this week set a higher target for full-year output, sees production hitting 290 million tons.
The global surplus will rise to 83.2 million tons in 2020 from a forecast 58.1 million tons this year, according to Morgan Stanley. Prices will drop over the next four quarters to $44 a ton by the April-to-June period of 2016, according to Goldman Sachs Group Inc. analysts Christian Lelong and Amber Cai.
Fortescue, which said in March it would consider selling minority stakes in its mines, isn’t rushing to conclude any discussions with potential investors, Chief Financial Officer Stephen Pearce said Thursday.
“We are in no hurry to do anything with our assets, we have got no balance sheet pressure,” Pearce said in a phone interview. “We will assess any opportunity on its merits as is appropriate.”
The producer has spoken with about 10 potential Asian investors, people with knowledge of the matter said last month.
Fortescue fell 6 percent to A$1.645 in Sydney, the lowest close since 2008, leading declines by the biggest miners amid the rout across commodity markets. BHP lost 2.9 percent and South32 Ltd. slumped 3.4 percent in Australia.
Fortescue received a realized price of $57 a dry ton in the year to June 30, about 85 percent of the benchmark price, it said. For fiscal 2016, the company forecast an all-in breakeven price of $39 a dry ton, it said in a statement.
The exporter ships ore of a lower quality than the benchmark material of 62 percent content. Benchmark prices averaged $71.76 a ton over the same period, according to Metal Bulletin.