Steel production in China will grow by 3-4% - Fortescue CEO says

The head of Australia's Fortescue Metals Group, the world's fourth-largest iron ore supplier, expects steel production in China to grow despite the economic downturn as government stimulus stimulates demand.

Fortescue sees "a 3-4% increase in steel production in China this year," based on discussions with "customers and other key players," CEO Elizabeth Gaines said Wednesday in an interview with Nikkei during a visit to Japan. China, which accounts for half of the world's crude steel production, gained a record 928 million tonnes last year, up 10% from 2017.

In addition to the China-led Belt and Road project to build ports, highways and railways across Eurasia, the government's “focus on further infrastructure development” at home also supports demand for steel and thus iron ore, he said. Gaines.

“Continued investment in infrastructure is a way to continue to stimulate the economy,” she said, noting that high-speed rail projects have been announced and new airports built.

Gaines said the trade war with the United States, which is weighing on the Chinese economy, does not directly affect China's steel sector. “Steel produced in China is consumed domestically [and] very little is exported to the US, but this may have some indirect implications,” she said.

Gaines also pointed out that the iron ore remains intact due to tensions between Beijing and Canberra, which reportedly led to Australian coal shipments being delayed at customs checks in February. China can use its own domestic coal supply, she said, but the country relies on imported iron ore to support its steel producers.

However, the likelihood of Beijing exerting economic pressure through trade remains a risk for Fortescue, which generates 90% of its sales in China.

“We were gradually looking for opportunities for further diversification,” Gaines said.

She noted that Fortescue has clients in Japan and South Korea, and she "will continue to develop this relationship." The company also sells Vietnam and India, which Gaines described as growing markets along with Indonesia.

The Fortescue mines are located in the Pilbara region of northwest Australia, “an excellent location to supply the wider region,” she said.

The push for diversification is a result of Fortescue's recent move towards higher grade ore with more iron, which is more in demand in markets such as Japan and South Korea than lower grade ore.