Fortescue: Higher Pricing the Highlight in Third-Quarter Sales

No-moat Fortescue shipped about 46 million metric tons of iron ore in the third quarter of fiscal 2023, 6% below the second quarter of fiscal 2023, but in line with our expectations and the prior corresponding period, or pcp. Its generally lower-grade ore (around 57% to 58% iron content) means it incurs a discount to the 62% benchmark price. The company’s average realised price was USD 109 per metric ton, up 9% on the pcp, helped by Fortescue incurring a lower discount, which fell to 13%, down from 30% in the pcp. Discounts tend to shrink when steelmaking margins contract, as has happened. Then steel mills act to minimise costs by using cheaper lower-grade iron ore, rather than maximising steel volumes by using higher-grade iron ore when steelmaking margins are high. Iron ore prices have moderated recently on worries over the stability of the world’s financial system and a potential recession.