Fortescue Metals Group has achieved record quarterly shipments from the Pilbara as the iron ore giant continues to capitalise on strong Chinese demand.
The company reported shipments of 46.6 million tonnes in the June quarter, which included 4.7 million tonnes of the 60.1 per cent West Pilbara Fines.
This brought its 2019 financial year shipments to 167.7 million tonnes, one per cent lower than the previous year due to the impact of Cyclone Veronica.
Fortescue’s quarterly peak comes off the back of Chinese steel mills focusing on optimising raw material costs in response to lower steel margins, with shipped tonnage for all products increasing quarter on quarter in response to “sustained strong demand from customers.”
This was highlighted by crude steel production in China reaching 492 million tonnes in the first half of 2019, representing a 9.9 per cent increase on the previous comparable period.
China’s growing steel output has driven strong demand for seaborne iron ore, which, coupled with a 39 million tonne reduction in iron ore stocks at Chinese ports since June 2018, has driven Fortescue’s performance.
The company’s average revenue received has subsequently leaped 30 per cent compared with the prior quarter, reporting $US92 ($131.9) per dry metric tonne.
Fortescue chief executive officer Elizabeth Gaines said the company achieved “exceptional results” across safety, production, costs and delivery of its product strategy in the quarter.
“We have delivered record quarterly shipments of 46.6 million tonnes while reducing net direct cash costs by over five per cent to $US12.78 per wet metric tonnes, reinforcing our position as the lowest cost producer,” Gaines said.
“In addition, with healthy iron ore inventory levels across the supply chain we are well positioned to continue delivery of our highly valued product mix to customers in financial year 2020.”
Fortescue’s 2020 financial year shipments guidance is in the range of 170-175 million tonnes, including 17-20 million tonnes of West Pilbara Fines.
It’s cash costs are expected to be between $US13.25-13.75 wet metric tonnes and total capital expenditure of $US2.4 billion.
Fortescue’s relationship with China grew in the quarter when it established a wholly-owned Chinese sales entity to improve its offering of direct supply to customers in smaller volumes, in Renminbi directly from regional ports.
“This entity will complement our existing contractual seaborne arrangements with our first Renminbi transactions completed in June 2019,” Gaines said.
Fortescue will continue to ramp up activity in the back half of the year after breaking first ground at its Eliwana mine and rail project during the June quarter.
The company reported that achieving first ore on train from Eliwana remained on schedule and budget for December 2020, with costs for the project expected to significantly ramp up over the next two years.
Its capital expenditure for the project in the 2019 financial year reached $US124 million, with expenditure for the 2020 financial year expected to be $US700 million and then $US451 million in 2021.
Meanwhile, Fortescue reported that the $US2.6 billion Iron Bridge magnetite project also remained on schedule.
The operation is expected to produce 22 million tonnes of premium 67 per cent iron grade concentrate, with detailed engineering having commenced alongside progression with early works including construction of access roads, airport and camp under way.
“In addition, our ongoing investment in autonomy, relocatable conveyors and other initiatives such as the Queens Valley development will continue to deliver enhanced returns to shareholders,” Gaines said.
Fortescue also continued exploration during the June quarter, with a particular focus on the Western Hub in the Pilbara.
The company’s exploration expenditure for the quarter was $US29 million, bringing its spend in the year to date to $US96 million.
Fortescue also continues copper-gold exploration for early stage targets in the Paterson and Rudall projects in Western Australia.
The company reported that work continued on its South Australian joint ventures with Tasman Resources and Strategic Energy, which were announced during the quarter.