(Bloomberg) -- Fortescue Ltd. reported a small increase in full-year profit, but the fourth-largest iron ore miner missed analyst forecasts as it battled inflationary pressures while weathering a slowdown in demand for the steelmaking material from biggest customer China.
The company, helmed by billionaire and Chairman Andrew Forrest, has recently backtracked on plans to become a green-energy powerhouse and remains less diversified in other commodities than its peers. That’s put the Perth-based miner in the spotlight as China’s steel demand plateaus and iron ore prices slump amid a glut.
Underlying net income for the 12 months to June was $5.68 billion, up 3% from the previous year, Fortescue said in a stock exchange filing Wednesday. That figure fell short of median analyst estimates of a $6.12 billion profit. The statement cited negative factors during the period as higher costs for labor, fuel, shipping and contractors.
A slowdown in China’s economy due to lower steel demand in its property sector may weigh on iron ore prices in the coming years, according to fellow miner BHP Group Ltd., which posted its own earnings Tuesday. The biggest miner reiterated its belief that Chinese demand for Chinese steel has already plateaued at about 1 billion tons a year.
“The plateauing of steel, in some senses, would spook the market, but for us that plateau is at a much, much higher level than its ever been before,” Fortescue’s metals division chief, Dino Otranto, said in a Bloomberg Television interview Wednesday. “That bodes well for an organization like Fortescue, whose product suites cater for all parts of the cycle.”
The result caps a tumultuous period for Forrest, who in July was forced to dramatically scale back his plans to transform Fortescue into a green hydrogen heavyweight. The company has also been impacted by an exodus of senior executives, while poor weather hampered shipments from its Pilbara iron ore projects.
Fortescue also endured a train derailment on its main export line in the Pilbara during the reporting period. In December, extreme heat caused a track to nearly buckle, which in turn saw a train slip from the tracks and scatter ore cars.
The company’s financial performance in the period “was impacted through inflationary pressures,” the company said Wednesday. The miner shipped 191.6 million tons of iron ore during the period, slightly less than in the year before, it said.
Fortescue will pay a dividend of 89 Australian cents per share, it said. Its shares initially rose in Sydney following the announcement but later fell as much as 2.7%.
Iron ore remains Fortescue’s lifeblood, generating around 90% of its operating sales revenue. The company put its goal of producing 15 million tons of green hydrogen a year by 2030 on hold last month. Activity on the technology was slowed down across the board, and it said it would cut about 700 jobs.
Green hydrogen — produced by splitting water into hydrogen and oxygen molecules using renewable energy — is yet to be commercially produced anywhere in the world. Fortescue has been making a relatively small amount at a plant in the Pilbara region of Western Australia and last year made a final investment decision on three other projects at a cost of around $750 million.
Fortescue remains committed to reaching net zero emissions by 2030, Forrest said in the statement.
“As we decarbonize Fortescue, we have reflected this focus through our commitment to developing four global green hydrogen projects,” Forrest said. These are in the US, Australia, Norway and Brazil, he said.
(Updates with metals chief’s comment in 5th paragraph)
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