April 29, 2020 / 11:31 PM / a month ago

UPDATE 2-Fortescue raises iron ore export forecast as Q3 output jumps

* Fortescue raises shipment forecast to 175-177 mln T

* Sees steady economic recovery in China, ongoing demand (Adds analyst comment, share price reaction)

MELBOURNE, April 30 (Reuters) - Fortescue Metals Group Ltd hiked its annual iron ore shipments forecast on Thursday after it reported a 10% rise in third-quarter shipments and said it has managed to keep a lid on costs amid the coronavirus pandemic.

The world’s No. 4 iron ore miner shrugged off any impact from the virus outbreak, saying iron ore shipments and customer payments remain unaffected, even as it conserves cash to guard against a prolonged downturn.

Fortescue said in March that shipments from Port Hedland, the world’s biggest iron ore export hub, were continuing on schedule despite curbs on movement and activity in Australia, although exploration activities have been suspended.

The miner slightly raised its forecast for shipments of the steelmaking raw material in 2020 to 175-177 million tonnes (Mt), up from the top-end of a 170-175 Mt range previously.

“This is a solid production report across the board once again for Fortescue,” Jefferies analyst Christopher LaFemina said in a report.

“We maintain our Hold rating on FMG shares due to near-term downside risk to iron ore prices, but we also acknowledge that our estimates may be conservative and the investment case for FMG is strengthening.”

Shares in Fortescue were trading up 4.6% at $12.29 by 0153 GMT, in line with a firmer overall market. The stock is up 15% this year, compared with an 18% fall in the benchmark index.

The company shipped 42.3 Mt of iron ore in the three months ended March 31, just beating a UBS estimate of 42.1 Mt and up from 38.3 Mt in a cyclone-hit period last year. Operating costs fell 2% to $13.27 per wet metric tonne.

“We have seen strong ongoing demand for our products as Chinese crude steel production has remained resilient,” Chief Executive Elizabeth Gaines told a results call.

“We anticipate a steady recovery in China’s economic activity,” she said, adding that urbanisation and development would continue to underpin long-term iron ore demand.

Cash costs of $13.27 a wet metric tonne were slightly below Clarkson Platou’s estimate of $13.02, but pricing came in above expectations. Fortescue received 82% of the Platts 62% Iron ore Index price for the quarter, or $73 a dry metric tonne, against Clarkson’s expectation of $69 a tonne.

“We view this as yet another very solid operational quarter for Fortescue,” it said. It has a neutral rating on the stock.

Fortescue confirmed its two growth projects Eliwana and Iron Bridge are on time and on budget.

Peer BHP , which maintained its annual iron ore output forecast last week, had said global steel production excluding China could drop sharply this year.

Rio Tinto and Brazil’s Vale SA have cut output forecasts for key metals due to disruptions from the virus. (Reporting by Shashwat Awasthi in Bengaluru and Melanie Burton in Melbourne. Editing by Lincoln Feast and Richard Pullin)

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