Fortescue Shipments Down; Still Upbeat on China Demand -- Commodity Comment

Fortescue Metals Group posted a production update Tuesday, in which the world's No. 4 iron-ore exporter reported an 8% on-quarter drop in shipments, as well as another reduction in its production costs.

Here are remarks on commodities from the company's output report:

On China's steel industry...

"Steel production in China remained consistent in calendar 2017 supporting the continuing strong demand for iron ore. More recently, steel mill profitability has moderated while coking coal prices have fallen. These trends are expected to result in steel mills seeking to minimize input costs by increasing the use of high value-in-use, low impurity Fortescue ores. This supports the market view that post Chinese New Year and the end-of-winter production restrictions there will be a reduction in price spreads between iron-ore grades."

On its iron-ore operations...

"Mining, processing, rail and shipping performance was maintained in line with guidance at a consistent rate of 170 million tons per annum with total shipments in the first half of 84.5 million tons."

On cash production costs...

"C1 costs for the quarter decreased to a record low of US$12.08 a wet metric ton as productivity and efficiency initiatives offset the impacts of higher strip ratios, foreign exchange rates and fuel costs. C1 cost guidance for the full year is maintained at US$11-12 a wet metric ton."

On its balance sheet...

"Cash-on-hand at 31 December 2017 was US$0.9 billion following cash outflows in the quarter for the Solomon Power Station purchase, dividends and the final FY17 tax payment with gross debt decreasing to US$4.2 billion."

On exploration efforts...

"Exploration remained primarily focused on iron ore in the Pilbara with expenditure of US$12 million during the quarter bringing total FY18 expenditure to date to US$29 million. Key areas of exploration include: iron ore in Fortescue's Western Hub area; lithium in the Pilbara; copper/gold near Orange in New South Wales; Ecuador where preliminary exploration and community engagement has commenced on the 32 concessions granted, [and]; Columbia where 64 exploration concession applications have recently been submitted."

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com

(END) Dow Jones Newswires

January 29, 2018 18:47 ET (23:47 GMT)