Iron ore miners are at risk of incurring billions of dollars more in fuel costs if diesel prices continue to rise, a senior executive at Australia’s Fortescue said on Monday.
The US-Israeli war on Iran has all but stopped shipments through the Strait of Hormuz, sending oil and gas prices higher and tightening the supply of diesel, a main transport fuel for the mining sector.
Benchmark Singapore diesel swaps were trading at slightly more than $180 a barrel on Monday, up from $92.5 a barrel before the war broke out, LSEG data showed.
“A 10-cent change in the price of diesel impacts us by $70 million,” said Dino Otranto, metals and operations chief executive officer at global miner Fortescue, in an interview on Monday. “If you look at our competitors, the top four, every 10-cent movement has a half a billion US dollar impact on the cost structure.”
The company gets most of its fuel from Southeast Asia, but was “comfortable” with current fuel stocks, he said, as long as the war in Iran does not escalate.
The world’s fourth-largest iron ore supplier has set some of the most ambitious decarbonization targets among Australia’s major miners, which Otranto said had helped it save fuel costs.
He said Fortescue would save at least $100 million over the next 12 months on diesel costs from its push to electrify operations with renewable energy. The company planned to cut consumption by 1 billion liters of diesel equivalent over the next few years.
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“We announced a very aggressive decarbonization agenda some years ago,” he said.
“For a number of years, that plan has been met with a lot of criticism, but now the tides are shifting … now our shareholders say, you need to do this faster,” said Otranto.
Fortescue is in conversation with China’s state iron ore buyer China Mineral Resources Group, said Otranto, who described the talks as dynamic and not confrontational.
He declined to comment on negotiations about supply terms for this year.
(By Amy Lv, Lewis Jackson, Trixie Yap, Melanie Burton and Helen Clark; Editing by Thomas Derpinghaus)
