Fortescue (ASX:FMG) Falls 5% on Cost Concerns Despite Record Shipments- Buy, Hold, or Sell?

Fortescue’s Record Shipments Face Cost Hurdles

Fortescue (ASX: FMG) fell more than 5% on Thursday after releasing its December quarter results, closing at around A$21.46 despite posting record first-half iron ore shipments. The sell-off came as investors focused on rising costs rather than strong volumes. Hematite C1 costs jumped 5% quarter-on-quarter to US$19.10 per wet metric tonne, sitting well above the company’s FY26 guidance range of US$17.50 to US$18.50. For shareholders, the key question is whether management can bring costs back into line, or whether this signals a deeper problem.

What are the Best ASX Iron Ore Stocks to invest in right now?

Check our buy/sell tips

Record Shipments Can’t Hide the Cost Problem

Let’s give credit where it’s due. Fortescue shipped 50.5 million tonnes in the December quarter, lifting total first-half shipments to 100.2Mt. That’s 3% higher than the same period last year and a new record for the company.

But here’s the concern. Costs rose 5% from the previous quarter, driven by processing lower-grade ore and higher diesel prices. At US$19.10 per wet metric tonne, the company is now running above its full-year guidance of US$17.50 to US$18.50.

Management says the second half will bring costs back into range. The market seems sceptical, with the sharp sell-off suggesting investors want proof, not promises. If costs remain elevated, full-year guidance could be at risk.

Iron Ore Prices Provide a Buffer- For Now

The good news is that iron ore prices are providing a cushion. Fortescue achieved a hematite realised price of around US$93 per dry metric tonne in the quarter. Even with costs at US$19, margins remain healthy.

The company also maintains a strong balance sheet with US$4.7 billion in cash and net debt of just US$1.0 billion. This provides flexibility to weather short-term cost pressures.

However, the outlook for iron ore is turning bearish. Westpac forecasts prices could fall to US$83 per tonne by end-2026, representing a 20% decline. New supply from the Simandou project in Guinea is expected to increase competitive pressure.

Strong margins today could turn into squeezed margins if iron ore prices fall while costs stay elevated.

The Investor’s Takeaway for Fortescue

So is this a buying opportunity or a warning sign?

The stock is trading above analyst consensus targets. Most analysts have price targets in the A$19 to A$20 range, while the stock sits around A$21.50. The consensus rating is “Hold”, with two buy ratings, seven holds, and two sells.

For income investors, the dividend story remains attractive. Fortescue offers a yield of around 4.8% to 5%, though forecasts suggest FY26 dividends may fall to around A$0.92 per share, down from A$1.10 in FY25. 

Bulls point to record volumes, maintained cost guidance, and diversification into copper through the recent Alta Copper acquisition. Bears highlight costs running above guidance, a softening iron ore outlook, and a premium valuation.

Our view is that for income-focused investors already holding the stock, the yield remains compelling. For new buyers, waiting for clarity on whether second-half costs actually improve may be prudent. The dip is interesting but not yet a screaming buy given the macro overhang and cost uncertainty.

The key risk to watch: if second-half costs don’t fall back into the guidance range, dividend pressure becomes a real possibility.