Fortescue beats guidance; iron ore price discount widens

[SYDNEY] Fortescue Metals Group on Thursday reported higher than expected fiscal 2017 iron ore shipments and said it cut costs by 15 per cent in the fourth quarter amid a widening price discount for its ore.

Cash production costs averaged US$12.16 per wet tonne in the last quarter, 15 per cent less than in the same period a year ago and 7 per cent below the previous quarter, the company said.

The world's fourth biggest producer of iron ore also set a cost target of US$11-12 per tonne for the current year.

The cost structure put Fortescue near or below the average costs of larger rivals Vale , Rio Tinto and BHP Billiton .

The company said iron ore shipments in the fourth quarter rose 3 per cent to 44.7 million tonnes from a year earlier, sweeping full-year shipments to 170.3 million tonnes, just above its own guidance of 165 million to 170 million tonnes.

Fiscal 2018 guidance was set at 170 million tonnes.

The discount Fortescue sells its lower grade iron ore against the 62 per cent spot index benchmark widened to 23 per cent in fiscal 2017 from 10-15 per cent a year ago. The discount would likely range between 20-25 per cent in the 2018 financial year, it said.

"The current spread in prices between iron ore grades is expected to continue in the short term while steel mill profitability and iron ore port stockpiles remain at current high levels," Fortescue said.

Fortescue sells most of its ore the steel mills in China.

REUTERS