Fortescue Warns China Dispute Could Disrupt Iron Ore Operations

Fortescue, the world’s fourth-largest iron ore miner, has warned that its operations could face disruption if negotiations with China Mineral Resources Group (CMRG) are not concluded by the end of the year.

The Australian company has been negotiating with the Chinese state-backed buyer throughout 2026 as China seeks better purchasing terms for its steel industry.

Chinese steelmakers have been dealing with weak domestic demand and narrow profit margins, prompting efforts to reduce raw material costs. CMRG has been using China’s purchasing power to negotiate supply agreements with major international iron ore producers.

Earlier reports indicated that CMRG had verbally advised some Chinese steel mills not to agree to take delivery of Fortescue’s flagship iron ore product during annual supply negotiations.

The dispute has left Fortescue stockpiling ore at ports while discussions continue, creating uncertainty around sales and deliveries.

In its quarterly production report, the company said its forecasts for iron ore shipments, hematite unit costs and metals capital expenditure in the 2027 financial year remained unchanged. However, it cautioned that these projections were subject to the outcome of negotiations with CMRG.

Iron ore sales fall below shipments

Fortescue reported first-quarter iron ore sales of 42.9 million metric tonnes, below analysts’ expectations and more than 9% lower than the 46.8 million tonnes shipped during the period.

The company’s shipments were also below the 49.7 million tonnes recorded in the corresponding period a year earlier and the 47.5 million tonnes forecast by Visible Alpha analysts.

Fortescue attributed part of the difference between sales and shipments to maintenance activities, while the ongoing negotiations with China’s state-backed buyer have added pressure to its ability to move its flagship product to customers.

The gap between sales and shipments is significant because ore delivered to customers may not match the volume dispatched during a reporting period. Continued delays in concluding supply agreements could make it harder for the company to convert shipments into sales.

The negotiations are therefore a key factor in Fortescue’s near-term commercial outlook.

Rising diesel prices push up production costs

Fortescue is also facing higher operating costs, adding to the pressure from the sales dispute.

The company said higher diesel prices, inflation and reduced supply-chain volumes contributed to a 13% increase in its C1 unit costs for hematite iron ore during the quarter.

Diesel price increases alone added $1.40 per wet metric tonne compared with the same period a year earlier.

C1 unit costs are a key measure of the direct costs associated with producing and delivering mined material. An increase in these costs can reduce margins, particularly when commodity prices or sales volumes do not provide sufficient compensation.

The combination of higher operating expenses and weaker-than-expected sales could weigh on profitability if the challenges persist.

2027 shipment forecast remains unchanged

Despite the uncertainty, Fortescue maintained its full-year 2027 iron ore shipment guidance at between 197 million and 207 million tonnes.

The forecast includes between 11 million and 14 million tonnes from its Iron Bridge operation.

However, the company acknowledged that its outlook remained subject to the outcome of negotiations with CMRG. A prolonged dispute could affect its ability to deliver against its projections.

Fortescue’s warning comes as other major Australian iron ore producers also face challenges in negotiations with the Chinese buyer.

Reuters reported that Rio Tinto had agreed to a new deal with CMRG, according to people familiar with the matter. The development could place additional focus on whether Fortescue can reach an agreement on acceptable commercial terms before the end-of-year deadline.

Fortescue shares fall to lowest level since 2025

Investor concerns over the negotiations and the company’s operating performance were reflected in its share price.

Fortescue shares fell by as much as 2.4% to A$14.90 on Thursday, their lowest level since June 2025. The broader S&P/ASX 200 benchmark declined by 0.5%.

The company also recently reported a 37% fall in its cash balance, adding to concerns about its financial position as it manages the ongoing dispute and higher operating costs.

Separately, Fortescue said on Wednesday that it had dismissed a senior executive following an investigation into allegations of sexual harassment and bullying.

The immediate concern for the miner, however, remains the outcome of its negotiations with CMRG. An agreement could help restore certainty around deliveries to China, while a prolonged impasse could put pressure on sales, operating plans and financial performance.