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Weaker demand and ore prices hit Fortescue profit

Glenn Freeman with AAP  |  21 Aug 2018Text size  Decrease  Increase  |  
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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

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

. Glenn Freeman is senior editor, Morningstar Australia.

© 2021 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'regulated financial advice' under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information, refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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