China and iron ore this week

5 09 2009

Well it seems that the authority that CNN is does not agree with my reading of the China/Fortescue deal. Some really see the potential in Fortescue being a disruptive force in the iron ore triad’s “freeride”. That is based on the assumption that the company could possibly reach an output of 200 million tons a year. At present the capacity of Fortescue is estimated at 45 million tons a year. You can do the math; Fortescue is far from reaching the 200 million tons threshold which leads me to question the timeframe under which such a grand master plan can be implemented.

Fortescue current supply agreement of 20 million tonnes will cover only 5% of China’s expected iron ore demand for 2009 which confirm my initial view that the deal between Fortescue and China is overpriced.

On other iron ore news, Baosteel admitted earlier this week that it was paying provisional benchmark prices to Vale and Rio Tinto. The prices match what was offered to Japanese and South Korean steel mills. Baosteel also took a stake in Aquila Resources, an Australian iron ore explorer, last week.

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