Aus­tralia’s Fortes­cue prof­its dive on slump­ing Chi­nese de­mand

The China Post - - WORLD BUSINESS -

Aus­tralian miner Fortes­cue Met­als on Mon­day posted an 88 per­cent slump in full-year net profit on the back of tum­bling prices for the steel­mak­ing com­mod­ity iron ore, with main­land 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 US$316 mil­lion for the 12 months to June 30, down from US$2.74 bil­lion a year ear­lier.

The re­sult missed an­a­lyst ex­pec­ta­tions, with the em­bat­tled com­pany’s shares clos­ing 14.62 per­cent lower at AU$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 US$44.59.

Chief ex­ec­u­tive Nev Power ad­mit­ted it had been “a chal­leng­ing en­vi­ron­ment” with fel­low gi­ant Rio Tinto post­ing an 82 per­cent 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 ur­ban­ize and China’s econ­omy is prob­a­bly back where the U.S. econ­omy was back in the early 1900s or 1920s so to bring it up to 75 per­cent or 80 per­cent ur­ban­ized 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 that 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 main­land China.

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