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China slump turns Fortescue from world-beating mining stock to big loser

  • Shares of Perth-based iron ore miner has declined 10 per cent this year; the metal lost 10 per cent of its value in February
  • The metal contributes about 91 per cent to Fortescue’s revenue, compared to about 50 per cent for peers BHP and Rio Tinto

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A worker walks past a pile of iron ore from Australia at a port in Tianjin municipality. Photo: Reuters
Bloomberg
Fortescue’s months-long stock rally suffered a big pullback in February as investors turned sour on the iron ore producer’s earnings growth and exposure to slumping metal prices amid China’s rocky economic recovery.
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The world’s fourth-largest iron ore miner is tipped for the greatest earnings slowdown over the next year compared with peers BHP, Rio Tinto and Vale, according to data compiled by Bloomberg. Shares of the Australian firm have surged almost 30 per cent in the past six months, outpacing peers. But since the start of this year, they have tumbled alongside iron ore, one of the worst-performing major commodities.

As a relatively high-cost producer, the Perth-based miner founded by billionaire Andrew Forrest is more sensitive to iron ore price swings compared to peers, according to Mohsen Crofts, a Bloomberg Intelligence analyst.

“Fortescue’s operating margins are slimmer than BHP or Rio Tinto’s. Any change in the iron ore price will therefore have a greater [earnings] impact for Fortescue,” he said. “While BHP and Rio now get a material share of their revenue from base metals, Fortescue is for now still fully reliant on iron ore.”

An employee works inside a steel factory of Valin Group in Loudi in cental Hunan province in China. Photo: Reuters
An employee works inside a steel factory of Valin Group in Loudi in cental Hunan province in China. Photo: Reuters

The metal makes up about 91 per cent of Fortescue’s revenue, compared to about 50 per cent for BHP and Rio Tinto, according to Bloomberg data. Fortescue’s iron ore business propped up its half-year earnings, bucking a trend of declining profits among its diversified rivals. Analysts estimated a 14 per cent downside to its earnings for next year, the worst among its peers.

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