Fortescue, one of Australia's largest mining companies, has warned that iron ore production may slow unless negotiations with China's state-backed buyer, China Mineral Resources Group (CMRG), conclude by year-end. The company, founded by billionaire Andrew "Twiggy" Forrest, has been in talks with CMRG this year to secure supply to Chinese steel mills. Pressure intensified in July when CMRG reportedly ordered companies to stop buying low-grade products from Fortescue's Western Australian operations.
Fortescue has dubbed CMRG the "key risk" to the iron ore sector. In a Thursday statement, the company said its production and financial guidance depend on striking a deal. Agustín Pichot, Fortescue's chief executive of growth and energy, confirmed talks remain confidential, stating the company is focused on shareholders.
Chief metals executive Dino Otranto resisted the suggestion to accept lower prices, questioning the long-term interests of the industry and Australia. China has been the profit engine for Australia's largest miners over the past decade. Industry analysts note CMRG is shifting from centralized purchasing to a force in global iron ore price formation.
BHP previously settled talks with CMRG in April after prime ministerial intervention. Rio Tinto maintains a long relationship with Chinese customers. Fortescue shares fell 3% in Sydney, bringing yearly declines to over a third.
The company warned of a September quarter sales drop to 42.9 million tonnes, nearly 4 million tonnes lower than shipments. Inventory is expected to rise by 4-5 million tonnes this month, with production adjustments possible if no deal is reached. Fortescue remains focused on good faith negotiations grounded in fair market practices.
Source: Financial Times Companies · Summarized by HeadlinesBriefing