Australian iron ore miner Fortescue Metals Group saw record exports in the April-June quarter, which lifted its full 2016-2017 fiscal year (July-June) shipments marginally above guidance, the company said in its quarterly results Thursday.
Fortescue said it expected shipments to hold steady for the 2017-2018 fiscal year, with further cost reductions.
The June quarter shipments came in at 44.7 million wmt, up 3% year on year from 43.4 million wmt, and up 13% from 39.6 million wmt in January-March, it said.
Its direct operating costs (C1 costs) fell to $12.16/wmt in April-June, down 15% from $14.31/wmt a year earlier and down from $13.06/wmt in the March quarter, it said.
"Fortescue's June quarter results demonstrates the continued excellent performance being achieved by our teams in safety, production and operating cost improvement," CEO Nev Power said.
Fortescue had seen 12 consecutive quarters of C1 cost cuts, but costs then rose by 4% quarter on quarter in January-March.
For the full fiscal year, Fortescue shipped 170.4 million wmt, just topping guidance of 165 million-170 million wmt, and marginally exceeded the previous year's 169.4 million wmt.
It expects to maintain shipment volumes in the current 2017-2018 fiscal year at 170 million wmt, it said.
C1 costs rounded out the year at $12.82/wmt, down by 17% year on year, which fell into the $12-$13/wmt guidance range, and Fortescue is planning to trim that further to $11-$12/wmt in the current fiscal year.
"Leading into FY 18, we are well positioned to continue our focus on productivity and efficiency initiatives to improve costs, to invest in the long-term sustainability of our core iron ore business and maintain production levels," Power said.
The C1 guidance is subject to fluctuations in the Australian dollar exchange rates and fuel prices, which have been assumed to average $0.75 and $53/b for WTI, respectively, the company said.
"Iron ore and steel demand remained strong during the June 2017 quarter driven by construction and infrastructure development. As a result, steel mill profitability in China remains high and continues to incentivize blast furnaces to maximize production which supports the premium for higher grade iron ore," the company said.
Fortescue's average revenue realization in fiscal 2016-2017 was $53.27/dmt, 77% of the average Platts 62% Fe CFR price of $69.53/dmt and in line with guidance provided in the March quarter, it said.
The average realized price for contracts entered into during the quarter, on a weighted product basis, was 73% of the Platts 62% Fe CFR Index at the time of contracting.
Timing differences and price volatility resulted in realized revenue for the quarter of $37.82/dmt, it said.
For fiscal 2017-2018, it expects price realizations of 75%-80% on the Platts 62% Fe CFR Index.
"Realizations are expected to continue at or slightly below the low end of guidance in the first half before recovering to historical levels in the second half of FY 18," it said.
Historically, guidance has been 85%-90%, RBC Capital Markets analyst Paul Hissey said in a research note. And, RBC was expecting 80%-85%.
"It may be too early (or complex) to ascertain whether this downgrade is a function of structural change in the steel industry or the result of shorter term cyclical factors. However, FMG's sensitivity should not be overlooked -- on our estimates each 1% of permanent decline in price realization could equate to [roughly] A$1 billion in reduction to [net present value]," he said.
