Fortescue Metals Group’s financial performance has slumped as China has focused on using high-grade iron ore at its steel mills.
The Pilbara iron ore miner’s revenues fell 18 per cent in the 2018 financial year from $US8.45 billion ($11.56 billion) to $US6.9 billion, pushing its profits 58 per cent lower to $878 million.
Its average iron ore price received in 2017/18 was $US44 a dry metric tonne (dmt), compared to $US53 a wet metric tonne (wmt) a year earlier.
Fortescue, which today released its annual results, said the reduction in average price was due to China’s move to improve steel mill profitability, which means using higher iron content ores to maximise production.
The Chinese strategy has resulted in Fortescue realising revenue of 64 per cent of the average Platts 62 CFR Index price in 2018 compared to 77 per cent in the previous year.
Fortescue’s operational performance remained strong in the 2018 financial year despite lower prices and demand for its product.
The company shipped 170Mt of iron ore for the year after a record June quarter. Its cash costs were 4 per cent lower to another record of $US12.36/wmt.
Chief executive officer Elizabeth Gaines said, “We remain focused on maintaining our cost leadership position by capitalising on technology and innovation initiatives to offset inflation and optimise operating margins.”
Fortescue also approved development of the Eliwana project, a higher grade prospect that will lead to the delivery of a 60 per cent iron content product.
Gaines said Eliwana would provide flexibility to capitalise on market dynamics while maintaining the company’s low cost position.
“The new product will be called West Pilbara Fines and will be launched in the second half of financial year 2019 from existing operations,” Gaines said.
Fortescue has declared a fully franked dividend of 12 cents a share, bringing its total dividend for the 2018 financial year to 23 cents.
The company estimates that it will ship between 165–173Mt of iron ore in the 2019 financial year. Its cash costs forecast is set at $US12–13/wmt.