Fortescue Orders Ships to Cut Costs After Ore Price Drops

Fortescue Metals Group Ltd. (FMG), Australia’s third-largest iron ore producer, will spend $275 million on building four ships to help cut costs as prices for the metal hover at two-year lows.

The company signed an agreement with a Chinese shipyard for the construction of four very large ore carriers for delivery from November 2016 to May 2017, Perth-based Fortescue said today in a statement.

Iron ore miners including Fortescue, BHP Billiton Ltd. (BHP) and Rio Tinto Group are battling a price slump as growth slows in China, the world’s largest buyer. Morgan Stanley last week cut its price estimate for this year as the seaborne surplus grew faster than expected and cost support at Chinese miners fell.

Building ships was “consistent with Fortescue’s strategy of improving efficiencies and lowering its cost base,” Fortescue Chief Executive Officer Nev Power said.

Fortescue shares were unchanged at A$4.06 at the close of trading in Sydney.

Iron ore prices last week fell to the lowest since 2012. Ore with 62 percent iron content delivered to the port of Tianjin declined 0.7 percent to $90.90 a dry ton. Fortescue’s break even point is $77 a ton, according to estimates from UBS AG in a report dated June 4.
Source: Bloomberg