Sinosteel, Fortescue Metals Join Bid for MidWest Iron Ore

We saw in the Australian this morning that Sinosteel and maybe even Fortescue (ASX:FMG) are crashing Murchison’s bid for mid-West iron ore junior MidWest.

“Chinese steel powerhouse Sinosteel Corporation and Australia’s new force in iron ore, Fortescue Metals, look to have entered the AU$1 billion hunt for the already targeted mini-miner Midwest Corporation (ASX:MIS),” reports Matthew Stevens.

Think of the Pilbara as a proxy battleground between Japanese and Chinese steel makers. The annual production of firms like Midwest and Murchison (ASX:MMX) is tiny compared to BHP (ASX:BHP) and Rio (ASX:RIO). Murchison reckons it can produce 25 million tonnes per year for 15 years from its 400mt resource base at Jack Hills, while Midwest has targeted 20mt per year from the Weld Range.

By comparison, Rio Tinto produced about 200mt of iron ore last year and BHP 140mt. Both companies—as you no doubt know—have ambitious plans to ramp up production in the Pilbara. But that production is locked up in deals with major Chinese, Korean, and Japanese steel makers.

The smaller producers in the Pilbara and in the midwest, have plenty of customers and joint venture partners too. It comes down to economies of scale. Speaking of which, the Australian Bureau of Agricultural and Resource Economics published its annual statistics volume this week. Curb your enthusiasm! We took a look and found three tables worth taking a closer look at.

If you want to skip them, here’s the quick summary: China is the biggest customer, Japan a distant second. China is actually increased its production of iron ore by 40% between 2005 and 2006, but remains a net importer. Australia, despite producing about 46 million tonnes less than Brazil in 2006, exported exactly one tonne more (owing to lower rates of domestic ore consumption in the steel making business).

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Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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