Fortescue’s Nev Power says China steel deals will lift iron ore

As four of China’s biggest steel mills are consolidated into two, Australia’s iron ore miners could benefit.

The major consolidation flagged between some of China’s biggest steel companies will improve the health of the industry and ultimately benefit Australia’s iron ore miners, Fortescue Metals chief executive Nev Power says.

Reports this week suggested that four of China’s biggest steel mills would consolidate into two as part of a sweeping overhaul a steel industry that has been hurt in recent years by a surplus of ­capacity.

Speaking to The Australian on the sidelines of the Diggers & Dealers mining forum in Kalgoorlie yesterday, Mr Power said the consolidation should be a positive for Fortescue and other iron ore suppliers.

“Anything that makes our customers stronger is a positive for the market,” Mr Power said.

“Fundamentally, iron ore demand is driven by the amount of steel consumed irrespective of how many steel mills are making it, but obviously the more successful and the more profitable our customers are the better, it augers well for a very strong industry.”

The proposed unions would see Hebei Iron & Steel join with Shougang Group to form the Northern China Steel Group, while Baosteel and Wuhan Iron and Steel would join forces to become the Southern China Steel Group.

All four customers are among Fortescue’s existing customer base of around 60 Chinese steel mills.

Mr Power said the mooted combinations would offer better economies of scale, more efficient steel production and ultimately more profitability.

Fortescue has dramatically reduced its cost base over the past year and has slashed its debt levels even as iron ore prices tumbled.

Those cost-cutting efforts have been rewarded by a recovery in the iron ore price back above $US60 a tonne in recent days.

Mr Power said the company was again enjoying “very strong” margins.

“We’ve worked very hard to make sure we are as productive and efficient as we can be, and we’re at the very low cost end of the supply curve now,” he said.