Fortescue Shares Higher after Record Shipments (ASX:FMG)

The Fortescue Metals Group Ltd’s [ASX:FMG] share price is up today 3.8% after releasing their June 2020 quarterly production report.

Fortescue is an Australian iron ore producer and exploration company in Western Australia.

Fortescue beats guidance

The company shipped 47.3 million tonnes (mt) in iron ore for the quarter. For the 2020 financial year, Fortescue recorded a total of 178.2mt in shipments, a 6% increase from the previous year.

This amount blew past their 175–177mt guidance for the year, guidance they had already increased back in March from 170–175mt after having a record third quarter performance.

The company implemented a range of measures for the pandemic. This increased production costs during the June quarter by US$22 cents to US$13.02 per wet metric tonne. Their average cost for the 2020 fiscal year was US$12.94.

The company said they got average revenue of US$81 per dry metric tonne in the fourth quarter, which is 86% of the average Platts 62% CFR Index. This brought average prices to US$79 a tonne for the 2020 financial year.

The company ended FY20 with US$4.9 billion cash on hand.

Fortescue’s Chief Executive Officer Elizabeth Gaines also took the opportunity to give an update on the company’s renewable energy efforts. As she said:

During the quarter we announced important targets to achieve net zero operational emissions by 2040 and a 26 per cent reduction in our Scope 1 and 2 emissions by 2030, positioning Fortescue to address the global climate change challenge with a sense of urgency. Our pathway will include investments in energy infrastructure to increase our use of renewables, as well as a focus on technology and innovation to decarbonise through hydrogen and battery energy solutions.

What could happen next?

At time of writing, Fortescue shares were trading at $17.49, a 63% increase year-to-date.

A reason for the steady increase is that throughout the pandemic, Chinese steel production has stayed strong. According to MySteel, in the first six months of 2020 Chinese steel production reached 499mt, a 1.4% increase than the same period the previous year.

While demand has stayed strong, China dropped their annual economic growth target for this year. The virus is bringing plenty of uncertainty and we could see a weakening of Chinese demand in the coming months as global growth slows.

So far, strong demand and higher iron ore prices have boosted AUD prices. Where could the AUD go next?

Editor Greg Canavan from The Rum Rebellion tackles that question on his free report ‘Will the Aussie Dollar Enjoy a Post-Pandemic Resurgence?

You can read it here.


Selva Freigedo

Selva Freigedo is a research analyst for The Rum Rebellion.

Born in Argentina, her passion for economic analysis started at a young age. Her father was an economist for the Argentinean governments and the family used to discuss politics and economics at the dinner table.

Argentina is a country with an unusual economic history. Growing up there gave Selva first-hand experience on different economic phenomena such as hyperinflation, devaluation and debt default.

Selva has also lived in Brazil, Spain and the USA.

Back in 2000 she was living in the US as the dot com bubble popped…
And in 2008 she was in Spain as the property market exploded and then collapsed…

She has seen first-hand what happens when bubbles burst.

Selva joined Fat Tail Investment Research’s team in 2016, as an analyst. She now writes from her vantage point in Australia, where she settled in 2015.

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