Fortescue Iron Ore Shipments Climb 3.8% as Costs Decline

  • Costs reduced for eighth consecutive quarter, CEO Power says
  • Ability to cut debt in tough market may bolster confidence

Fortescue Metals Group Ltd., the world’s fourth-biggest iron ore exporter, said second-quarter shipments rose 3.8 percent, beating analyst estimates, as costs fell to a record and net debt declined. 

Shipments were 41.4 million metric tons in the three months ended Dec. 31, compared with 39.9 million tons a year ago, the Perth-based producer said in a statement on Thursday. This beat the median estimate of 40 million tons among three analysts surveyed by Bloomberg. Total shipments, including third-party material, were 42.1 million tons from 41.1 million tons.

Producers are racing to cut costs as iron ore is trading at less than a quarter of its 2011 peak and last month plunged to the lowest level in more than six years as the economic slowdown in China slows demand growth in the biggest user. Fortescue’s output costs were lowered for the eighth consecutive quarter, Chief Executive Officer Nev Power said in the statement, dropping to $15.80 a wet metric ton.

Fortescue “continues to make good progress on costs,” David Coates, a Sydney-based analyst at Bell Potter Securities Ltd., said by phone. “I’d certainly expect them to make progress to get their" costs to, or below, $15 a ton by the end of the fiscal year, he said.

Stock Climb

The stock closed 4.1 percent higher at A$1.52, paring losses this year to 19 percent.

Fortescue sees opportunities for further cost reductions this year including from lower shipping expenses helped by a 14 percent slump in oil prices this year. The company sees more scope to pare debt with a cash balance of $2.3 billion as at the end of last year. Net debt fell to $6.1 billion, from $6.6 billion the previous quarter.

“The U.S. debt markets have been heavily oversold predominantly on the back of the oil price and our debt has been priced down,” Power said on a media call. “If the market would price our debt at those low levels, then it’s a great opportunity for us to buy back ahead of time and do it very economically.”

Iron ore with 62 percent content delivered to Qingdao advanced 3.3 percent to $42.43 a dry ton on Wednesday after bottoming at $38.30 on Dec. 11, a record low in daily prices by Metal Bulletin back to May 2009. Fortescue’s average realized price for the quarter was $40.46 a ton, the company said.

“Demand for Fortescue’s products remains strong and represents over 17 percent of imported iron ore into China,” the company said in the statement. It maintained full-year shipments guidance at 165 million tons and completed the early repayment of $750 million of debt during the quarter.

“The fact that they can service and reduce their debt in a tough iron ore market like this, I think it should give the market a lot of confidence in the stock,” Bell Potter’s Coates said.

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