Fortescue: First-Quarter Volumes Down Modestly but On Track

No-moat Fortescue shipped about 46 million metric tons of iron ore in the first quarter of fiscal 2024. This was in line with our expectations but 3% below the same quarter of fiscal 2023 and 6% below the previous quarter. Shipments from its new 69%-owned Iron Bridge mine were immaterial. Fortescue's average realized price was USD 100 per metric ton, up 14% on last year, driven by higher benchmark prices and a lower discount, which fell to 13% from 15%. With its generally lower-grade ore, around 57% to 58% iron content, Fortescue incurs a discount to the 62% benchmark price. Discounts tend to shrink when steelmaking margins contract, as has happened. Then steel mills act to minimize costs by using cheaper, lower-grade iron ore, rather than maximizing steel volumes by using higher-grade iron ore when steelmaking margins are high. Iron ore prices remain elevated on strong Chinese steel production.