FMG market moat

out from Macquarie this morning

Chinese steel mills would back Fortescue

PUBLISHED: 13 Nov 2014 22:21:31 | UPDATED: 14 Nov 2014 00:05:51PUBLISHED: 14 Nov 2014 PRINT EDITION: 14 Nov 2014
The slide in the iron ore price shows little sign of subsiding and many of the producers at the smaller end of town are thinking seriously about survival. After iron ore nearly halved in value over the past year, Citigroup slashed its forecast this week to $US65 a tonne for the next two years, from about $US80. But one company that may have some extra protection is Fortescue Metals Group. Street Talk understands that some of Fortescue’s major Chinese steel mill customers have signalled they will back the company should things get really rough. The country’s third-largest iron ore producer has received billions in prepayments from its customers in the past, including $US600 million announced last week. It’s understood some of the bigger steel mills have made it clear they are prepared to stick the course. Fortescue’s debt is made of mostly bonds so it is unclear how the steel mills could go about guaranteeing it, which may only leave with them with the option of more prepayments.


What makes a lot of sense to me is that the buyers dont want a world where they only buy from the big 3 when finished steel product profitability starts to rise again and they want to reinflate production to sevre rising Chinese and global steel good demand.

Seems a few years before that will happen but realistic nonetheless.