Fortescue Metals Secures Iron Ore Deal Amid Trade Tensions
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Fortescue Metals secures Iron Ore Deal Amid Trade Tensions

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  • Australian Iron Ore Miner Fortescue Metals has announced a $4 billion Deal with China
  • China buys over 80 per cent of Australia’s Iron ore, one of the country’s largest exports
  • China Australia Trade tensions stay well away from Iron Ore

Fortescue Metals Group (ASX: FMG) is set to take advantage of this massive Market with China, securing over $4 billion in Iron Ore deals with at China International Import Expo (CIIE). In total Fortescue Metals has signed 12 memorandums of Understanding which included new and existing deals with Hunan Valin Iron Ore and Steel Group, The Bank of China, Baotou Iron & Steel, and Benxi I&S Group and more. The deal is a significant step for Fortescue in securing strong cash flows moving forward.

Australian Giant Fortescue Metals has grown to become one of the largest Iron Ore producers in the world, shipping around 170 million tonnes of iron ore per annum. They own and operate one of the world's premier iron ore mines in Pilbara Western Australia.

Chief Executive Officer Elizabeth Gaines stated that “China’s steel industry continues to outperform expectations … the strength in demand for iron ore continues to play an important role in Australia’s economy, growth and development.”

As it stands, China buys over 80 per cent of Australia’s Iron ore, an extremely large weighting on a singular country. In comparison, 60 per cent of total Iron Ore consumer by China itself is Australian. This displays the true interdependence of the two countries trade relationship and dependency on each other base on Iron Ore production.

Trade tensions between Australia and China have intensified in recent months, spreading to Barley, beef imports, wine, and Coal. At a major Port in Shanghai last week, a Chinese import agent told clients that no shipments of Barley, sugar, red wine, timber, wool, lobster and copper ores would be cleared. Together these imports account for $6 billion in Australian exports. Australian Coal itself makes up $20 billion of Australia’s $149 billion of total exports to China.

Coal is Australia’s largest export to China, earning $80 billion per year and is not an item that can be easily bought elsewhere. The World’s second-largest exporter of Iron Ore, Brazil, is currently struggling to meet demand.

In addition, a subsidiary of the Company, Tasman Resources Ltd (ASX: TAS) has advised the ASX that drilling has commenced at Lake Torrens. Tasman Resources is a diversified mineral exploration company. Fortescue in recent days has committed $1 billion to a portfolio of renewable assets that include replacing a fleet of diesel busses with hydrogen-fueled alternatives. As of the 16th of November 2020 at 10:20 Fortescue is trading at $16.75, up over 50 per cent year to date.

Caroline Wong

Caroline Wong is a Research Analyst at KOSEC – Kodari Securities. She writes on markets and focuses on ASX Top 300 companies. Email Caroline at c.wong@kosec.com.au.

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