Fortescue (ASX:FMG) pinning its hopes on ore turnaround

Company News

by Glenn Dyer

Fortescue Metals Group (ASX:FMG) wants to ship 3 million more tonnes of iron ore in 2022-23 into a market that most analysts reckon will be oversupplied.

FMG Thursday forecast higher iron ore shipments for the next year on hopes of stronger performance at its Eliwana project, and logged record quarterly and annual shipments despite a tight labour market (thanks Covid) and higher costs.

The world’s fourth-largest iron ore miner said it expects to ship 187 million tonnes to 192 million tonnes in the 2023 financial year, compared with 189 million tonnes shipped in the year to June 2022. That was up from the 182.2 in 2020-21 and just edged past the 185 to 188 million tonnes range it forecast in April.

Fortescue reported a third consecutive year of record shipments, reflecting strong performance across the entire supply chain and the successful integration of its new Eliwana hematite based mine which came on stream at the start of 20121 and has been ramping up ever since.

June quarter shipments of 49.5 million tonnes just pipped the 49.3 million tonnes in the June quarter of 2021.

But that optimism flies in the face of the negative outlook Goldman Sachs issued this week for the global iron ore market. Goldman Sachs thinks there will be a “significant surplus” of iron ore in the second half of the year, which could mean that the iron ore price gets pushed significantly lower.

Goldman thinks there will be an excess of 67 million tonnes for the rest of 2022, compared to a deficit of 56 million tonnes in the first half. Goldman Sachs was previously expecting the iron ore price would reach $US90 a tonne and $US110 a tonne.

However, the investment bank now expects this to be $US70 a tonne and $US85 a tonne. It’s currently around $US118 a tonne, having climbed to that level (on the Singapore Exchange’s futures market) from $US98 a tonne a week ago yesterday.

Fortescue lifted its annual cost guidance to $US18.00-$UA18.75 a wet metric tonne, and said it expects capital expenditure costs for 2022-23 (excluding Fortescue Future Industries) to be between $US2.7 billion and $US3.1 billion, compared with $US3.1 billion in 2021-22.

It said that the new cost forecast “reflected the lag effect of ongoing inflationary pressures, with the increase driven by diesel, labour rates, ammonium nitrate and other consumables together with mine plan driven cost escalation”.

Fortescue is not alone in that experience.

Peers such as Rio Tinto, BHP, OZ Minerals, Sandfire Resources and a flock of smaller miners have warned of labour market issues in Western Australia and other states (NSW and South Australia for instance) as new strains of COVID-19 lead to more worker absenteeism while rising inflation pushes energy and other input costs higher.

Fortescue shares ended the day up 2.8% at $18.70.

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