Talks on iron ore price with China Mineral Resources Group hit sales at Andrew Forrest’s Fortescue

Fortescue’s ongoing talks with an increasingly powerful state-backed buyer of iron ore in China are cutting into the Andrew Forrest-controlled miner’s sales.

Reporting a preliminary first-quarter update on Thursday, Fortescue revealed total shipments from the Pilbara reached 46.8 million tonnes during the three month to the end of September — down 6 per cent on the same period a year ago.

It pinned the fall on maintenance and a scheduled port outload shutdown but said stocks across the supply chain remained healthy.

But sales for the three months were well below shipments at 42.9mt, “reflecting impacts from ongoing negotiations with China Mineral Resources Group”.

The group is a procurement agency created by Beijing to consolidate the purchasing power of China’s steel mills in an effort to keep a lid on prices.

It has already flexed its muscle to cut deals with Fortescue rivals BHP and Rio Tinto.

The Big Australia was embroiled in a nine-month stand-off with CMRG, which banned Chinese steel mills from buying various BHP ore products.

The protracted talks were settled earlier this year, but the miner’s iron ore boss, Tim Day, said future negotiations would only become more complex.

CMRG last month told some mills to hold off on purchases of Rio’s Pilbara Blend while it remained locked in talks.

Fortescue’s chief of growth and energy Gus Pichot has previously warned of the danger of Beijing’s direct intervention in the iron ore market.

“It’s the latest example of trade friction affecting the iron ore industry, undermining the stable supply of iron ore to China,” Mr Pichot said when the miner delivered its June-quarter results at the end of July.

“For decades, Australian companies have supplied China reliably, competitively and in good faith. That trade has supported Australian jobs . . . it has also provided China with a secure and reliable supply of iron ore that helped drive its extraordinary industrial growth.

“We just want a fair market practice and that’s a big statement we just want to put through.”

Fortescue said it achieved an average realised price of $US80/t for the September quarter.

It held cash of $US3.2 billion ($4.6b) at the end of September and had net debt of $US2.8b, up from $US900 million three months earlier after paying out dividends and burning through $US900m in capital expenditure.