Fortescue Warns Operations May Be Hit If China Talks Run Past Year-End; Rio Tinto Reportedly Lands Deal

Fortescue put a date on its China problem today. In its first-quarter production report, released Thursday, Oct. 22, the miner said: "If negotiations with CMRG are not concluded by calendar year-end, operations may be affected."

CMRG is China Mineral Resources Group, the state-backed buyer Beijing set up in 2022 to consolidate iron ore purchases by Chinese steelmakers. The stated aim is better terms for mills that have faced thin margins and weak domestic demand.

Fortescue's quarter

Fortescue sold 42.9 million metric tons of iron ore in the quarter. That trailed its 46.8 million tons of shipments, a gap the company partly blamed on maintenance. Shipments were 49.7 million tons a year earlier. The Visible Alpha analyst consensus was 47.5 million tons, and the sales figure came in below what analysts had anticipated.

Costs rose too. C1 unit costs for hematite jumped 13% in the quarter. Fortescue pointed to higher diesel prices, which added $1.40 per wet metric ton from a year earlier, plus inflation and lower supply-chain volumes.

The company left its full-year 2027 guidance unchanged: 197 million to 207 million tons of shipments, including 11 million to 14 million tons from Iron Bridge. It also held its C1 cost and metals capital expenditure estimates. But it said those numbers are subject to the CMRG negotiations.

Fortescue shares fell as much as 2.4% to A$14.90 in Australian trading, their lowest since June 2025. The broader S&P/ASX 200 was down 0.5%. Fortescue has not tied the share move to any single factor.

What CMRG has done to Fortescue

Reuters reported earlier this year that CMRG verbally told some mills not to agree to take delivery of Fortescue's flagship iron ore product during annual supply talks. Fortescue has been stockpiling ore at ports while it negotiates.

Earlier this month the miner said its cash balance had fallen 37%.

Separately, Fortescue said Wednesday it had fired a senior executive after an investigation into allegations of sexual harassment and bullying. The company has not linked that decision to the China talks.

Rio Tinto reportedly gets there first

People with knowledge of the matter told Reuters on Wednesday that CMRG verbally notified some mills of a new supply agreement with Rio Tinto, without giving details. CMRG was due to start collecting information Thursday on how much each mill needs to buy from the miner.

Bloomberg, citing people familiar, reported that the agreement was reached earlier this month and covers November this year through May 2028. Reuters' sources described it as a new annual contract. Those descriptions differ, and neither CMRG nor Rio has confirmed the term or volumes.

Rio Tinto declined to discuss specifics. "Rio Tinto has a long and successful relationship with our customers in China, spanning more than 60 years," the company said. "We don't comment on the detail of confidential commercial negotiations." CMRG did not immediately comment.

The timing matters. Reuters reported in early August that CMRG told some mills to halt negotiations with Rio for shipments from September. Bloomberg reported in September that mills were told to hold off on Rio's Pilbara Blend as talks reached a critical point. The deal came roughly two months after that pressure began.

The pattern so far

Rio's rivals have not had it easy. BHP's standoff with CMRG lasted months and ended in a one-year deal through June 2027 that included greater use of yuan pricing. Kumba Iron Ore, the Anglo American-linked producer, reached a deal running from April to March 2027.

That is three of the major suppliers settled, each on different terms, with Fortescue still at the table. Australia is the world's biggest iron ore supplier and China takes the bulk of its cargoes.

Benchmark iron ore has fallen about 15% this year and recently dropped below $90 a ton in Singapore, according to Bloomberg. Sellers are negotiating against a single buyer in a falling market.

CMRG's side of the argument is that consolidation lets Chinese mills bargain collectively against a handful of dominant seaborne producers. Beijing created the entity for exactly that purpose, and the mills it represents say they are squeezed by thin margins. The miners, for their part, are dealing with one counterparty that can direct its members on whose ore to take.

The yuan pricing in BHP's deal shows that the terms of settlement, not just the volumes, are part of the contest.

What to watch

The unresolved details on Rio are the pricing basis and allocated tonnage, neither of which any party has disclosed. For Fortescue, the date is now explicit: its shipment and cost guidance is subject to the CMRG negotiations, and operations may be affected if a deal is not concluded by the end of the calendar year.