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Australia's low grade iron ore miner Fortescue Metals Group lowered its fiscal year ending June 2018 price realisation guidance to near 65% of the average benchmark S&P Global Platts 62 CFR index following sluggish demand growth from China and concerns of a trade war.

Fortescue Mines

"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 speculation regarding the potential impact of global trade tensions," Fortescue said in a filing to the Australian Stock Exchange.

The new guidance for fiscal year 2018 guidance has been lowered from the July-December realisation of 68% of the average Platts index and guidance given in the company's October-December quarterly report of 70%-75%.

Fortescue is the fourth largest producer of iron ore in the world, behind the Australian mega miners RioTinto and BHP who mine the higher grade ore.  The guidance is considered atypical of CEO 'Twiggy' Forest having a bet each way. 

"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," the company said.

Fortescue has announced plans to increase the grade of the majority of its product of the steel making ingredient to greater than 60% Fe from a current majority of 55%-58% Fe. It is hoping to do so through the development of its Eliwana mine, which the company is scheduled to make a decision on by June. The construction timeframe for the mine is expected to be over the fiscal 2018-2019 and 2019-2020 years.

"Fortescue's position as the lowest cost supplier of iron ore into China supports continued delivery of strong underlying earnings and cashflows as evidenced by the $1.8 billion of Underlying EBITDA and $1.4 billion of cash from operations generated in the first half of fiscal year 2018," Fortescue CEO Elizabeth Gains said.

Source: Fortescue, Platts

From a Sunburnt Country

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