Fortescue Metals Group chief executive Elizabeth Gaines has urged Australian companies to take advantage of the “significant” business opportunities from China’s Belt and Road Initiative.
“Business in Australia should be looking at BRI as a significant opportunity,” Ms Gaines told The Australian.
“It is an unprecedented investment in infrastructure,” she said. “It is led by the Chinese, but it extends to a number of emerging economies along what was the traditional Silk Route.”
Countries covered by the BRI program have a combined population of about 4.4 billion.
And the successful implementation of the BRI initiative would see an increase in opportunities in those countries and more trade, Ms Gaines said.
“There will be opportunities from BRI — not only for infrastructure but for agriculture and food, for education and tourism and medical services.”
Ms Gaines’ comments come ahead of a major conference on the BRI initiative to be held in Darwin this week.
Launched by Chinese President Xi Jinping, BRI is a Chinese-backed development initiative to boost infrastructure and trade from China westward to Asia and Europe.
Ms Gaines said if Australian companies did not move to take advantage of the opportunities of the BRI it would leave the way open for other foreign companies to do so.
“From our perspective, it is an important initiative. We should be taking the opportunities available from BRI,” she said.
“If we don't, others will.”
Aimed at boosting infrastructure and trade in the region, some BRI projects have attracted controversy for the pressure on the host country to borrow to help fund the infrastructure developments.
As a major supplier of iron ore to China, with plans to expand sales in Asia, Fortescue stands to benefit from the BRI because of the demand for steel for the projects.
“The infrastructure required to develop the BRI initiative is likely to be dependent on steel,” Ms Gaines said. “It underpins steel production in China.”
Some analysts see providing an outlet for China’s steel production as one of the driving forces behind BRI, as future demand in China may taper off as the great urbanisation move eases after a rapid move to the cities in the past 20 years.
“China produces about 830 million tonnes of steel a year, which is 50 per cent of global steel production,” Ms Gaines said. “China has already urbanised quite successfully and the BRI will continue to drive demand for steel production.
“I look at it from a commercial perspective. There are significant opportunities for companies to look at what is afforded through BRI. We look at it through the iron ore lens and the demand for steel but there are opportunities for other goods and services.”
Fortescue this year marked the 10th anniversary of its sales of iron ore to China, which is still by far its major customer.
But the company has suffered in the wake of China’s crackdown on pollution, which has seen the closure of many smaller and less efficient Chinese steel mills.
Fortescue produces ore with lower iron content than many of its larger rival suppliers, and spot prices have suffered.
“At the moment there has been a spread in prices between the higher iron content iron ore and lower iron content iron ore,” Ms Gaines said. “It is not that our iron ore is more polluting than any other iron ore, (the demand for higher grade ore) is just a reflection of the fact that steel mill profitability is at historically high levels.
“So steel mills are incentivised (to buy higher grade ore) because they have such strong margins. At the moment it means they can afford to pay more for the higher iron content products.”
Ms Gaines said Fortescue was selling all the iron ore it could produce.
And she said while the miner was getting lower prices for its iron ore in China, it was also the lowest cost producer of imported iron ore into China.
“We supply 17 per cent of China’s seaborne iron ore.
“We are still generating very strong cash margins on each tonne of iron ore we sell.”
While China has been Fortescue’s largest customer since its inception, the company has been expanding into other markets, including India, over the past year as steel production in Asia region stepped up.
The company’s sales of iron ore to countries outside China increased from 5 per cent last financial year to 11 per cent in the March quarter.
“China is still a very important market and a core market for us,” Ms Gaines said. “But we are seeing growth in the broader Asian region — we are seeing steel mills being built in Vietnam and Indonesia.”
She said steel production in India had also been expanding strongly as it overtook the US to become the world’s third-largest producer.
Ms Gaines said she did not expect the demand for iron ore or Chinese steel to be significantly affected by President Trump’s move to boost tariffs on steel imported into the US.
“The good news is that the majority of China’s steel is consumed domestically,” she said. “Their exports have decreased quite substantially. The US is ranked 26th as a destination for Chinese steel exports.”
She said BRI had seen Chinese steel exports directed to the region rather than the US.
“We don’t think the impact (from the US tariffs) on steel, and therefore demand for our iron ore, will be significant.”
But she said the prospect of a trade war between the US and China and other countries was having an impact.
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