Iron ore’s Fenix rises on price fix

9th September 2021

When a ship full of Fenix Resources’ iron ore sailed out of Geraldton port and into the sunset on Tuesday, the company’s managing director Rob Brierley could relax without fretting over slumping prices for his product (reports The Australian Financial Review).

After striking a deal in July to ensure Fenix receives $230.30 per tonne for some of its iron ore until November 2022, Brierley is one of the few mining bosses whose stocks could rise if iron ore prices continue to slide.

That July deal with one of Australia’s big five banks covers about 45 per cent of the company’s exports and will run for the period between October 2021 and November 2022.

Fenix was initially taking a haircut on the deal; benchmark iron ore prices were $US201.50 per tonne ($274 per tonne) on the day Fenix announced it, but within a week, Mr Brierley was looking like a genius.

“We were of the view that the prices were strong, they had stayed strong for quite a while and it wouldn’t have surprised us if we saw the price dwindle, particularly if we saw the price dwindle in that September, October, November region,” he said.

Iron ore prices tend to be a little bit seasonal there are a lot of factors that lead into August, September, October and November that cause weakness.

“It is the time when the Chinese government normally start to curtail steel production and that coincides with a time when Chinese internal production of iron ore is probably at its highest, Brazilian production is probably at its peak and the Aussie production is pretty well at its peak.”

China has indeed curtailed steel production at faster than expected rates in the past two months, curbing demand for iron ore and triggering a 41 per cent slump in benchmark iron ore prices since May 12.

Wednesday’s price of $US137.85 per tonne ($186.86 per tonne) has Fenix well in front on the price fix and Morgan Stanley expects iron ore prices to average $US100 per tonne in the final three months of 2022 when Fenix will be shipping its last volumes under the fixed price deal.

Brierley was at Geraldton port this week helping to load Fenix’s iron ore onto a boat when contacted by The Australian Financial Review.

He was happy to talk but reluctant to celebrate the fact that sliding iron ore prices had made him look smart.

“We are not patting ourselves on the back that the iron ore price has fallen so far, we did not hedge 100 per cent of our production,” he said.

Fenix drives its iron ore 485 kilometres to Geraldton port; the sort of business model that has previously only been viable when iron ore prices are booming.

That has made the price fix a key plank in the company’s survival plan.

“What we tried to do was just use hedging as a protection tool, so we thought by hedging the amount that we did, we would almost cover our cost base for the month by just doing that and everything else would just be profit,” he said.

“It made perfect sense to us.”

As signals from China once again prompt Australia to consider whether iron ore’s best days are in the past, Brierley remains optimistic about the nation’s top commodity export.

“I think there is still reasonable times to come and that is because there hasn’t been a huge [iron ore] supply response this time around,” he said.

“Back in 2011 and 2012 when the prices were high, you saw these large increments of expansion coming through from Roy Hill, Fortescue’s Solomon Hub and then the Carajas region in Brazil went through a major expansion as well.

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