While Fortescue (ASX:FMG) fell around -3.5% in the first hour of Thursday trade, as of 1.30pm AEDT the share price is on the way back up following an initial shock.
That shock was borne on the back of iron ore shipments falling -6% which was largely due to an ongoing dispute with Chinese buyers through its centralised China Mineral Resources Group (CMRG).
While Fortescue noted “higher working capital” which included increased product inventory (and presumably higher fuel costs), it’s the ongoing standoff with China that appears to have spooked some investors.
“Iron ore sales of 42.9Mt were below shipments of 46.8Mt, reflecting impacts from ongoing negotiations with China Mineral Resources Group (CMRG),” Fortescue wrote on Thursday.
That may be under-stating it. CMRG is the same Chinese-government-linked agency that has been giving grief to BHP, and has been for the last twelve months.
It ultimately comes down to pricing – and it seems safe to assume Fortescue is having the same headache as BHP: it doesn’t want to sell iron ore at the prices CMRG is demanding.
Fortescue has been trying to divert shipments to other Asian nations but it last year made nine tenths of its money on Chinese sales.
In the background, Rio Tinto’s heavily Chinese-backed Simandou project in Guinea remains a threat to the WA economy given that China has openly stated it wants to cut back on its reliance on Australian ore.
But, clearly, that rapidly approaching question mark isn’t close enough yet to scare off dip-buyers.
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