Fortescue Metals Group Limited (ASX: FMG) reported its full-year production results to the market on Thursday, revealing shipments that exceeded the expectations of the investment community as well as management themselves.
During the final quarter, Fortescue shipped a total 42.4 million tonnes of iron ore – of which its share was 41.3 million tonnes – taking its annual shipments to 165.4 million tonnes.
Not only does that represent a lift of 33% compared to the 2014 financial year, it's also greater than the 155 million to 160 million tonnes initially forecast by management, as well as the most recently revised 165 million tonnes estimate.
What is interesting about this scenario is that Fortescue, which is Australia's third largest iron ore miner and the fourth largest in the world, solidified its position as the nation's fastest growing exporter of iron ore.
By comparison, BHP Billiton Limited (ASX: BHP) said on Wednesday that its Western Australian Iron Ore (WAIO) division had produced 254 million tonnes, up 13% on the prior year. Meanwhile, Rio Tinto Limited (ASX: RIO) recently downgraded its annual production guidance from 350 million tonnes to 340 million tonnes as a result of weather disruption, which would represent growth of roughly 15% on last year's 295.4 million tonnes produced.
Indeed, in an environment characterised by tumbling commodity prices and waning global demand, the miners that hope to survive must cut costs, and one of the ways to do that is to increase their output and thus spread the overheads across more tonnage to improve margins. This is particularly important for the high-cost operators and those with a mountain of debt, as is the case with Fortescue Metals Group.
However, the reason why it is interesting that Fortescue cemented its position as Australia's fastest-growing exporter is because of how vocal it has been about how its larger rivals are essentially destroying the industry by flooding the market with supplies it does not need.
It claims that the extra tonnage brought to the market by Rio Tinto, BHP and Brazil's Vale are forcing prices lower and thus squeezing the smaller players from the market. Their additional output certainly isn't helping the iron ore price, which has fallen to around US$52 a tonne from US$135 a tonne in January 2014, but Fortescue has to take some of the responsibility for that as well.
In saying that, Fortescue has stated that it is finished with its expansion and will hold production at 165 million tonnes for the 2016 financial year, even though its three larger rivals will push on with their own expansion plans. That will not bode well for smaller miners such as BC Iron Limited (ASX: BCI) or Mount Gibson Iron Limited (ASX: MGX) which are likely struggling to turn a profit at the current iron ore price, let alone if it falls any further.
Fortescue's shares fell 6% after the result and finished the session trading at $1.645. Although it is hovering near a six-year low price, investors would be advised to steer clear and seek investment opportunities elsewhere.
