Fortescue Metals (ASX: FMG) has reported US$879 million net profit after tax for fiscal 2018, 58 per cent down on last year's US$2.09 billion.

Management also declared a final dividend of 12 cents a share, down from 25 cents a share a year ago.

Attributed to waning commodity prices and weakening Chinese iron ore demand, the profit result missed the US$1.08 billion consensus estimate.

mining commodities iron ore

Weaker iron ore prices and falling Chinese demand took a toll on profits

Demand for Fortescue's iron ore from China has been declining as steelmakers look to import higher-grade, less-polluting iron ore.

In response to its fourth-quarter production report, Morningstar's senior equity analyst Mat Hodge last month noted: "price realisation was again a weak point".

Fortescue realised US$ 41 per tonne during the quarter – just 63 per cent of the benchmark 62 per cent iron ore index, which averaged USD 65 per tonne.

"While negative, the headwind to our fair value estimate is offset by the lower Australian dollar," Hodge said last month.

Management guidance for $1.2 billion capital expenditure in fiscal 2019 was "about one-third higher than we expected".

Part of this expenditure relates to the Eliwana mine, which replaces other mines as they deplete, and is aimed at increasing Fortescue's iron ore grade from the current 58 per cent toward the benchmark 62 per cent.

In July, iron ore shipments to China from Australia's Port Hedland, which both Fortescue and BHP (ASX: BHP) use, fell nearly 20 per cent from a month earlier.

Cost per wet metric tonne came in at $US12.36 for the full-year that ended June 30, in line with previous guidance.

The miner, however, maintained its fiscal 2019 cost guidance of $US12-13 per wet metric tonne, and production guidance of 165 million to 173 million tonnes.

"A 60 per cent iron content product, named West Pilbara Fines, will be produced in the second half of financial year 2019 in advance of the development of the Eliwana mine and rail project," the company said.

The iron ore miner approved the new $US1.3 billion Eliwana iron ore mine in May.

Fortescue's share price was trading at $4.24 at the market close, a 14 per cent premium to Morningstar's 26 July fair value estimate of $3.70.

  • Net profit $US879m vs $US2.09b
  • Revenue down 18pct to $US6.89b
  • Final dividend of 12 cents a share, down from 25 cents a share


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Glenn Freeman is senior editor, Morningstar Australia

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