Forrest bets on China

Fortescue boss says economy will rebound

FORTESCUE Metals Group has confirmed it has had early engagement with China’s state-owned iron ore buying desk as the ball begins to move on Beijing’s effort to up-end the iron ore market.

Fortescue executive chairman Andrew Forrest on Friday said he expected pent-up demand for property in China to drive commodity markets in 2023, flagging a strong return of the Chinese economy.

“Importantly for the commodities market that huge population is ready to roll,” he said. “There’s going to be nothing wrong with that economy. You can pick holes in it, but generally it will be a very major growth centre and will absorb huge amounts of commodities from around the world.”

But, as Fortescue looks to advance its iron ore and other commodity projects outside Australia, the company confirmed the China Mineral Resources Group was starting to become active in the market.

CMRG is likely to become the world’s biggest iron ore buyer after it consolidates purchases for about 20 of China’s biggest steelmaking groups, including Baowu Steel.

It was established last July to buy raw materials for China’s domestic steel industry, in a market shake-up designed to give more market power to Chinese authorities.

If CMRG enters the market at scale and is successful in moderating the extraordinary volatility in iron ore markets seen over the past three years, it could signal the biggest shake-up of the market since Chinese buyers drove the end of the annual iron ore price negotiating system in 2010.

Fortescue’s group manager of market positioning, Ben Kuchel, confirmed Fortescue had been in regular contact with CMRG over recent months, but said its remit appeared to go far beyond simply acting as a trading desk.

“Those include resource development, the decarbonisation of the steel industry in China, as well a role to play in the supply chain linking iron ore from the world to China,” he said.

Fortescue broke fresh records in the December quarter, shipping 49.4 million tonnes of iron ore, with Dr Forrest saying the company had “never performed better”.

Fortescue’s shipments lifted 4 per cent compared to the September period.

But Dr Forrest noted its December quarter performance put Fortescue close to a 200 million tonne a year export rate, even before its Iron Bridge magnetite mine comes into the system, expected by the end of March.

Sales of Fortescue ore realised an average $US86.93 a dry metric tonne, or around 88 per cent of the average benchmark price for ore grading 62 per cent iron.

The company said it finished December with $Us4bn in cash, up from $Us3.3bn at September 30, with gross debt unchanged at $Us6.1bn.