Commodities Buzz: Fortescue Iron Ore Shipments Reach 38.7 Million Tonnes in March 2018 Quarter

Fortescue has released its March 2018 quarterly production results, reporting iron ore shipments of 38.7 million tonnes (mt) and cash production costs (C1) of US$ 13.14 per wet metric tonne (wmt). Year to date C1 costs are US$ 12.43/wmt, equivalent to a C1 cost of US$ 11.90/wmt after normalising for an assumed exchange rate of US$ 0.75 and fuel costs of US$ 53 per barrel (WTI). Fortescue refinanced its 9.75% Senior Secured Notes during the quarter transitioning the balance sheet to an investment grade structure and reducing annual borrowing costs by US$ 130 million.

Cash on hand at 31 March 2018 was US$ 2.6 billion inclusive of amounts committed to the repayment of debt and the interim dividend in April 2018. The adjusted cash balance at 31 March 2018 is US$ 0.6 billion. Net debt at 31 March 2018 reduced to US$ 3.1 billion from US$ 3.3 billion at 31 December 2017. Exploration spend was primarily focussed on iron ore and lithium in the Pilbara with expenditure of US$ 13 million during the quarter. This brings the total FY18 expenditure to-date to US$ 42 million.

The rebound in steel demand post Chinese New Year was slower than expected with ongoing localised sinter plant restrictions and recent lower blast furnace operating rates contributing to the market conditions. A seasonal lift for the remainder of this quarter is expected to be supportive of steel markets and is key to the ongoing strength in iron ore demand. Profit margins for Chinas steel mills have declined from the peaks reached in the December 2017 quarter and there are now signs that steel mills are refocussing on costs resulting in increased demand for Fortescues high value-in-use lower iron content ores.