Australia's Fortescue profits dive on slumping Chinese demand
Australian miner Fortescue Metals on Monday posted an 88 per cent slump in full-year net profit on the back of tumbling prices for the steel- making commodity iron ore, with China's economic slowdown weighing heavily.
Fortescue, one of the world's big four iron ore exporters along with Australia's BHP Billiton and Rio Tinto, and Brazil's Vale, made a profit of $316 million ( Dh1.16 billion) for the 12 months to June 30, down from $2.74 billion a year earlier.
The result missed analyst expectations, with the embattled company's shares closing 14.62 per cent lower at A$1.63 in a slumping market. The miner has been battling a supply glut and softening Chinese demand, which has seen the ore price plunge, hitting its lowest level since 2009 last month at $44.59.
Chief executive Nev Power admitted it had been "a challenging environment" with fellow giant Rio Tinto posting an 82 per cent slump in its first-half net profit earlier this month, with softer commodity prices also taking their toll. BHP reports its annual results on Tuesday.
"In a challenging environment of lower iron ore prices, the focus on efficiency and productivity from our world class assets will continue to see operational improvements and cost reductions," Power said. He added that the company aimed to maintain shipments of iron ore at 165 million tonnes annually "to create long term value for Fortescue shareholders" despite an increasingly oversupplied market, which has forced the ore price down.
Power said it was hard to predict how iron ore prices would move in the next 12 months but he was upbeat about the long term outlook for the commodity, banking on Beijing's efforts to stimulate its economy to boost demand for steel.
"There are about 300 million people still to urbanise and China's economy is probably back where the US economy was back in the early 1900s or 1920s so to bring it up to 75 per cent or 80 per cent urbanised is going to take a lot of steel yet to come," he said.
"We're seeing a lot of signs of stimulus coming into the market. I think there is a recognition that they need to stimulate the economy and that will flow through to steel demand." All the big miners, such as BHP and Rio, have been boosting production to maintain or even lift their export share.
Earlier this year Fortescue founder Andrew Forrest alleged BHP and Rio were deliberately increasing production levels to push out smaller rivals which have higher production costs, causing them to struggle to stay afloat. The two majors denied this. In a note, Commsec market analyst Tom Piotrowski said Fortescue was at the whim of China.
"Australia's third largest iron ore miner generates 94 percent of its revenue from selling ore to China and is extremely sensitive to economic developments in the world's second biggest economy," he said, describing the profit result as "a huge slump".