20/02/2008 - 22:00

Credit markets will affect WA

20/02/2008 - 22:00

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The health, or lack thereof, of global credit markets is highly relevant to business in WA.

Credit markets will affect WA

The health, or lack thereof, of global credit markets is highly relevant to business in WA.

Some of the state’s biggest companies took advantage of the previously benign conditions in credit markets to fund their current operations.

The prime example is iron ore developer Fortescue Metals Group, which borrowed nearly $2 billion in the US two years ago to fund its Pilbara iron ore project.

The same highly innovative deal could not be done today, which is bad news for the many junior explorers and miners that aspire to develop big mining projects.

For those already in the game, the prospect of another big jump in iron ore prices will provide a very substantial boost to their prospects.

The 65 per cent price rise, negotiated this week by Vale with Japanese and South Korean steel mills, will set a benchmark for other producers, notably the big Pilbara miners Rio Tinto and BHP Billiton.

It follows increases of 71 per cent, 19 per cent and 9.5 per cent over the three past years.

Instead of following tradition and accepting the same increase, Rio and others are expected to push for an even larger rise.

They want to be rewarded for the freight advantage Australian exporters enjoy over their Brazilian competitors.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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