After denying a structural shift towards a larger discount on lower-grade iron ore in the global steelmaking market for almost a year, Fortescue Metals Group has finally cut its price realisation guidance.
The third-largest Pilbara miner on March 28 announced it would proceed with a lower expected price for its ore, compared to the market benchmark, than it has in the past.
Fortescue’s iron ore, exported from Port Hedland, is typically between 56% and 59% iron content – below the benchmark of 62%.
For its ore, Fortescue has traditionally received an average of around 87% of the benchmark price.
But an increasing appetite for premium raw materials in China’s steelmaking market has seen this discount widen significantly over the last 12 months – a trend Fortescue, until Wednesday, was hoping would reverse.
Fortescue told the market this week it realised an average price of just 68% of the benchmark Platts 62 CFR index in the first half of FY18.
It has subsequently downgraded its expected contractual realisation for its iron ore to just 65% of the average Platts 62 CFR index for the full FY18.
“The updated guidance reflects a slower than anticipated recovery in contractual realisations due to Chinese construction activity remaining subdued, the extension of temporary production restrictions in certain provinces in China as well as the speculation regarding the potential impact of global trade tensions,” the miner said.
“As market conditions stabilise, price realisation as a percentage of the Platts 62 CFR index is expected to increase.
“This view is supported by an expectation of strengthened demand for lower iron content ores as steel mill margins moderate and end users look to lower their raw material input costs.”