FMG Results: Fortescue stunned by ‘mind-blowing’ China renewables rollout, says steel demand is diversifying

Fortescue Metals CEO Dino Otranto remains bullish on China, saying renewables are helping diversify its steel demand
FMG saw iron ore shipments fall 6% YoY in the March quarter after an ore car derailment and issues at its Iron Bridge magnetite mine
Andrew Forrest’s miner has maintained guidance, but will need to operate at near record rates for three straight months to hit lower end of 192-197Mt forecast

Fortescue (ASX:FMG) CEO Dino Otranto says he remains confident in the outlook for iron ore and steel demand in China as renewables and EVs pick up slack from a crippled property sector.

Those predicting a nosedive in iron ore prices due to crumbling property development and floor sales in China have been left disappointed with iron ore prices remaining in the US$110/t range.

While property and residential construction were the key drivers of iron ore’s boom in the past two decades, Otranto said a recent visit to China showed the demand drivers were becoming increasingly diversified.

“China’s rollout of wind and solar capacity blew my mind and this renewable energy infrastructure needs a lot of steel,” he said on a quarterly results call this morning.

“In fact, last year China built 300GW of renewable energy and invested almost US$900 billion, making it the largest driver of China’s overall economic growth.

“The automotive industry there is another example where I’m amazed by the EV penetration happening in China right now.

“China accounted for over 60% of the global EV output and sales last year. Looking ahead this year, we believe that the Chinese Government continues to have capacity to respond to the macro and local economic environment and that its economic growth will support steel demand.”

China’s steel PMIs have trailed the overall growth in purchasing manager’s orders seen in March, but its official GDP growth surprised last quarter at 5.3%, above a 5% 2024 target viewed by many economists as ambitious.

FMG production derailed

Fortescue has maintained its guidance of 192-197Mt despite a 6% YoY fall in iron ore shipments of 43.3Mt in the March quarter, impacted by an ore car derailment at the end of December.

It saw hematite C1 costs rise 7% to US$18.93/t, with timing of sales hitting realisations as well, average prices of US$104/dmt capturing 85% of the Platts 62% Fe CFR Index. On a contractual realisation basis, that number was 90%.

Water pipeline issues and reduced mining volumes at its Iron Bridge magnetite mine have also seen it moderate guidance again from 2-4Mt to the low end of 2Mt for FY24, including 500,000t in the March quarter.

Prices for Iron Bridge concentrate came in at US$145/t, a 7% premium to the Platts 65% Index.

FMG is on track still to deliver at C1 hematite costs of US$18.13/wmt, and has moderated capex from US$2.8-3.2b to US$2.5-2.7b for FY24 based on lower Aussie to US dollar exchange rates and timing of investments.

Fortescue will need to produce in the order of 54Mt in the June quarter to deliver to the lower end of guidance, needing to match an 18.7Mt “record” run rate hit in the month of March.

The quarterly contained little in the way of new updates on Fortescue’s energy division plans with opex reducing by US$100m to US$700m due to ‘cost saving initiatives’.

FMG finished the quarter with US$4.1b in cash, and net debt of US$1.2b after paying a US$2.2b dividend and spending US$589m in capex in the quarter.

Otranto also said the mining giant had completed the first phase of testing on its battery electric haul truck, an early stage initiative in its US$6.2b decarbonisation plan at the company’s Pilbara iron ore mines.