Fortescue invests in four ships to ease the impact from declining iron ore prices

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Image credit: Pete Markham

Fortescue Metals Group, Australia’s third largest iron ore producer after Rio Tinto and BHP Billiton, will invest $275 million in building four ships to reduce costs as Iron ore prices last week fell to the lowest since 2012.

Image credit: Pete Markham
Image credit: Pete Markham

The company said in a statement that the contract for building four very large ore carriers  had been awarded to a Chinese shipyard, which is to deliver the fleet from November 2016 to May 2017.

Fortescue Chief Executive Officer Nev Power said that building ships was consistent with the company’s strategy of improving efficiencies and lowering its cost base. He said the contract represents a strategic decision to secure long term, low cost freight on vessels that will complement infrastructure at Herb Elliott Port and maximise shipped volume.

“We are already in the shipping business, with an annual forecast spend of around US$1.5 billion a year,” Mr Power said.

“These vessels are a natural extension of our supply chain and will play a significant role in increasing efficiencies at the Port and lowering costs. They also reflect and strengthen our close relationship with China, our largest customer.”

Big iron ore miners including Fortescue, BHP Billiton and Rio Tinto are battling a price slump as demand from China, the world’s largest buyer, continues to fall.

According to the article on Bloomberg, ore with 62% iron content delivered to the port of Tianjin declined 0.7% to $90.90 a dry ton. Fortescue’s break-even point is $77 a ton, according to estimates from UBS AG in a report dated 4 June.