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Moody's deaf to FMG case

Fortescue Metals Group has failed to convince credit ratings agencies its cost-cutting measures will lead to healthy profits, with Moody's Investor Services cutting the embattled iron ore miner's rating in the wake of yesterday's quarterly production report.

Fortescue used the March-quarter report to flag further falls in its cash costs next financial year, to an average of $US18 a tonne, and said it needed a benchmark price of only $US39/t to break-even.

The company said its March cash costs averaged $US25.90/t, 9 per cent lower than in the December period. It delivered ore to China at an average cost - including shipping, royalty and administration - of $US34/t, down from $US41/t previously.

Chief executive Nev Power said Fortescue was keeping ahead of the falling iron ore price, at $US50.33/t yesterday, and cost cutting meant the company was "cementing our place in this industry, irrespective of what the market price is for iron ore".

But its outlook failed to convince Moody's analysts, who late yesterday cut Fortescue's corporate debt rating from Ba1 to Ba2 with a negative outlook.

Senior analyst Matthew Moore said Moody's had lowered its iron ore price outlook to between $US45/t to $US50/t through 2016, and at those levels it did not believe Fortescue could maintain strong earnings levels.

He said Moody's believed Fortescue would remain above the break-even point but its debt-to-earnings ratios at the agency's new price forecasts meant a Ba1 rating could not be justified.

Fortescue finished March with $US1.8 billion in cash, up from $US1.6 billion at December 31.

Mr Power told analysts he believed Fortescue's savings measures meant its forecast production costs were "absolutely" sustainable in the long term, and the company might benefit further from a falling local currency.

Fortescue also upgraded its full-year export guidance by five million to 10 million tonnes, to a range of 160mt to 165mt.

Mr Power again lashed out at BHP Billiton and Rio Tinto for flooding the market with extra volumes and depressing prices, saying they had "ripped the heart out of the industry". He denied claims Fortescue's latest export upgrade showed it was also contributing to the problem.

"We haven't done anything to expand capacity, we haven't . . . spent money on de-bottlenecking, we're just trying to run the business efficiently at around that rate and make sure we're operating at the lowest possible cost," he said.

Break-even $39 The price per tonne, in US dollars, Fortescue says it needs to break even next financial year