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Iron ore behemoth Fortescue’s months-long stock rally suffered a big pullback last month, as investors turned sour on the company’s earnings growth and high exposure to slumping metal prices amid China’s rocky recovery.
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 Brazil’s Vale, according to data compiled by Bloomberg.
Fortescue Metals Group is expected to feel the slowdown in iron ore demand more than its rivals.Credit: Bloomberg
Shares of the Australian firm founded by billionaire Andrew Forrest have surged almost 30 per cent in the past six months, outpacing peers. But since the start of this year, its shares have tumbled alongside iron ore, one of 2024’s worst-performing major commodities.
As a relatively high-cost producer, the miner is more sensitive to iron ore price swings compared to its peers, according to Mohsen Crofts, a Bloomberg Intelligence analyst based in Sydney.
“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,” Crofts 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.”
The metal comprises about 91 per cent of Fortescue’s revenue, compared to about half each for BHP and Rio Tinto.
‘While we believe management has done an excellent job operationally, Fortescue’s share price will be highly dependent on the iron ore price.’
Jefferies research analysts
Fortescue’s iron ore business propped up its half-year earnings released in February, bucking a trend of declining profits among its diversified rivals. But now Fortescue’s earnings growth is in doubt, with analyst estimates suggesting a 14 per cent downside for next year, the worst among its peers.
The Perth-based miner’s bumper stock run has also been halted by dwindling metal prices. China’s property woes have weighed on the steelmaking ingredient, which lost 10 per cent last month. Post-Lunar New Year demand for iron ore remains disappointing amid a slow recovery to construction activities, wintry conditions and sluggish home buying.