Why Fortescue (ASX: FMG) is down ~5%
Fortescue (FMG) has fallen below $15 following a disappointing September quarter production report, with the major concern being an escalating pricing dispute with China Mineral Resources Group (CMRG), China’s state-backed iron ore purchasing agency. Iron ore shipments fell 6% year-on-year to 46.8Mt, while actual sales were just 42.9Mt, leaving a 3.9Mt gap between shipments and sales.
- Management warned that a further 5Mt could remain unsold this quarter as negotiations with CMRG drag on.
Adding to the disappointment, higher diesel prices pushed production costs to US$21.98/t, above the midpoint of FY27 guidance, a likely common story across the ASX mining companies.
The standoff with China is now the key issue for investors. CMRG has reportedly encouraged Chinese steel mills to delay purchases of Fortescue’s iron ore as it pushes for more favourable pricing, with the two parties currently relying on short-term agreements.
CEO Dino Otranto has made it clear that Fortescue will not accept an unfavourable deal, warning that production and spending could be affected if negotiations remain unresolved by December.
While FY27 shipment guidance of 197–207Mt has been maintained, the dispute presents a growing risk to earnings and cash flow, particularly given Fortescue’s heavy reliance on Chinese customers. MM believes resolving the pricing standoff is critical to restoring investor confidence, with the risk of further operational disruption likely to overshadow the stock until an agreement is reached.
- We like the risk/reward towards FMG in the $14-14.50 region.
