Fortescue Metals Group Ltd., Australia’s third-largest iron ore miner, posted a 40% drop in full-year profit, as record shipments for the year failed to offset steep declines in prices for the steel-making material amid an economic slowdown in China. 

The Perth-based company reported underlying profit of $6.2 billion on Monday, down from a record $10.35 billion last year and almost exactly in line with average analyst projections. Still, the result was Fortescue’s second-highest profit on record. 

The results reflect a year in which prices for the steel-making material have more than halved since reaching a record in May 2021, hit by a sharp fall in China’s growth due to Covid-19 lockdowns. Beijing’s efforts to curb steel-making activity to reduce carbon emissions and a slowdown in the property sector have also had an impact -- Australian iron ore miners export around 70% of their product to China, according to government figures. 

Also on Monday, fellow Australian iron ore miner Mineral Resources Ltd. reported a 64% fall in underlying profit on Monday to A$400 million ($274 million), despite also securing record shipments for the year. It said the drop was a result of “the sharpest fall in iron ore price history.”

Fortescue Chief Executive Officer Elizabeth Gaines, who will step down from her role this year, declined to predict iron ore price movements but said China’s demand would remain “strong” this year.

“China will probably produce about a billion tons of crude steel again this calendar year, which is consistent with the previous year,” Gaines said in an interview with Bloomberg Television. “Given that there hasn’t been any significant new supply to the market, that’s a pretty balanced market composition.” 

Management Overhaul

Under founder Andrew Forrest, Fortescue has overhauled the firm’s management and aims to make the company a major global producer of green hydrogen to meet the global push away from carbon-emitting fossil fuels. 

Fortescue has said it will spend 10% of annual profits on its green energy arm, Fortescue Future Industries, and aims produce an initial 15 million tons a year of green hydrogen by 2030. However, it is yet to produce any hydrogen at commercial scale, and is dependent on iron ore for its revenue.  

The company said Monday it would spend between $600 million and $700 million on Fortescue Future Industries in the coming financial year, up from $534 million in the 2022 financial year. The majority of that would go on operational costs, with only $100 million going to capital expenditure. 

Iron ore prices in Singapore plunged from a record peak of nearly $230 a ton in May 2021, to below $100 a ton in November. On Friday, they were trading at just under $104 a ton. 

Fortescue will pay a final dividend of $A1.21 per share, bringing total dividends for the year to A$2.07. The company’s shares fell as much as 5.6% on Monday and at 3:47 p.m. in Sydney were down 4.7%.