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China a concern, ore not

WESTERN Australia’s iron ore producers appear unfazed over recent moves by the Chinese Government to cool its rapidly expanding economy.

While the resources sector overall has been suffering in recent weeks, the iron ore sector, in the midst of booming steel demand from China, was at the sharp end of the stick when Chinese premier Wen Jiabao told Chinese banks to restrict credit.

As one of the top producers of iron ore in the world, WA, and particularly its junior iron ore miners, have been scrambling to gain a piece of the Chinese market over the past year.

At the same time the bigger players – Rio Tinto and BHP Billiton – have managed to lock away massive 10- to 20-year contracts with Chinese steel manufacturers – smoothing out potential bumps like last week’s comments as China tries to calm its surging economy.

While stock price damage was widespread on bigger players’ prices – even BHPB and Rio suffered decent hits – the small non-producing iron ore companies really suffered.

Of these, Fortescue Metals Group, with its two-fold plan to mine and construct infrastructure in the Pilbara, suffered most, shedding more than 15 cents from 53 cents last Monday.

Mid West Corporation, which plans to mine for iron ore near Geraldton, also shed about 15 cents from its 76-cent share price last Monday.

Local exporters Portman Mining and Mt Gibson remained relatively stable in relation to the Chinese moves. 

Portman managing director Barry Eldridge said the Chinese premier’s comments would have no impact at all on Portman and it would continue to review the possibility of expansion.

“My advice is there is a number of Chinese entrepreneurs out there developing at the smaller end of the market,” he said.

“They have been taking opportunities when they can in terms of jumping on and creating businesses on the back of heated environment in China.

“We at Portman deal with the major steel mills in China and that is where we want to be.

“The basic fundamentals behind the Chinese economy stand; I mean, nothing has changed in that respect.

“And we maintain a level of optimism with regard to growth in China. What decisions the Chinese Government makes certainly is up to it.”

Mid-west Corporation managing director Stephen de Belle said the comments were comforting, rather than negative.

“I do not see them as unduly concerning,” he said.

“Because they were anticipated; Mid West and others had already taken them into their considerations.

“I can’t speak for the market as a whole but the comments had been foreshadowed and there were no surprises.

“Secondly, I am aware of steel mills that are completed now in China that have no ore.

“So the ongoing shortfall theory remains valid. And thirdly I think the Aussie dollar has come down to a better level and this has helped significantly in terms of prospective income from China.

“So it is hard to see the consequences of these statements are necessarily negative. They are more a sort of comfort that the market is trying to be kept at a safe and sustainable level.”

Mr de Belle added, however, that it may take some of the gloss off some of the high spot iron ore prices touted in recent months.

Fortesue Metals Group remained upbeat despite the large chunk removed from its market capitalisation.

“China is managing their economy as you would expect for long-term growth,” FMG head Andrew Forrest said.

“This means that commodity prices must be managed. A major platform for that commodity price management is FMG and we continued to be assured of China’s support.”

FMG head of marketing Phillip Kirchlechner described the market’s response to FMG as an over reaction.

“We are focused on long-term growth and we are looking at very high numbers,” Mr Kirchlechner said.

“The whole thing is not interesting if the share price is below $1. We are talking about a $10 to $20 stock, that is what we are all working for.

“I think the [Chinese] Government has been very reliable in achieving above 7 per cent growth, with seven the magic number.

“And quadrupling it by 2020 means plus seven and I am confident they will continue to achieve that.”

Kumba Australia, which with Gina Rhinehart is trying to get iron ore mining operations off the ground in the Pilbara, said the recent news from China had not affected its plans.

“It is business as usual,” Kumba Australia managing director Jaques du Plessis said.

“We certainly have not taken a view that, because of the news we have to alter things or take things slower.”

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