Australia’s Fortescue follows Chinese steelmakers’ pivot to quality



Source: NIKKEI ASIAN REVIEW

Australia’s Fortescue Metals Group, the world’s fourth-largest iron ore producer, will shift focus to higher-grade ore over the next few years in response to brisk Chinese demand, CEO Elizabeth Gaines told Nikkei.

The CEO, promoted from chief financial officer last month, expressed little concern about the steel tariff signed last week by U.S. President Donald Trump. “I think where it would impact us is if there were a major impact on China,” she said, adding that Fortescue foresees little effect on Chinese demand.

The miner plans to maintain its annual production target of 170 million tons of ore for now, focusing on improving quality rather than increasing quantity. “Our view is that steel production in China will be relatively stable,” Gaines said.

Fortescue looks to have ore blends with more than 60% iron content account for the majority of the company’s product in the latter half of 2020, compared with about 58% iron for its current mainstay blend, Gaines said. Ore with higher iron content can be processed more efficiently into steel.

That lower grade means Fortescue’s ore typically sells at a discount to the benchmark Platts 62% index — which reflects prices for ore with 62% iron content.

Founded in 2003, East Perth-based Fortescue exports the bulk of its ore to China. China’s Hunan Valin Iron & Steel Group holds a roughly 14% stake in the miner.

“We are looking at opportunities to diversify our customer base,” Gaines said, citing Japan, South Korea and India as promising markets.

Fortescue hopes to settle soon on a replacement for the Firetail mine in northwestern Australia, which is expected to be depleted in five years. The company’s preferred option is the Eliwana mine, which contains higher-grade ore. Fortescue would invest $1 billion to $1.5 billion in the new mine, according to Gaines. She said construction including a railway extension would take two to two and a half years following an investment decision, likely to be made by the fiscal year-end in June.

Fortescue has cut expenses to fatten profit margins. It pushed production costs to a record low of $12.08 per wet metric ton in the October-December quarter and looks to reach between $11 and $12 this year.

Gaines called automation crucial to this effort, noting that the company plans to convert 100 trucks at its Chichester mining hub to autonomous vehicles in 18 months and also uses autonomous drills.

Source: NIKKEI ASIAN REVIEW