Fortescue Moves on Growing Markets Outside Steel Giant China

(Bloomberg) -- Fortescue Metals Group Ltd. is making iron ore marketing forays to steel-producing nations outside China to tap forecast increases in demand from burgeoning infrastructure projects across the region.

The world's fourth-biggest exporter's mines in northwestern Australia are well-positioned to take advantage of expected growth in countries such as India, Vietnam and the Philippines, Chief Financial Officer Elizabeth Gaines said in an interview. Australian iron ore exporters including Perth-based Fortescue account for more than half of the global export market.

“Our marketing team visit potential and prospective customers in all those regions regularly -- it's not just a complacent watching brief,” said Gaines, who took the post in February having served on the miner's board since 2013. “We are actually in those markets talking to people and wanting to be partners with them as those opportunities arise.”

India is poised to become a beacon for growth in global steel output as demand from infrastructure, construction and auto-making accelerates, BMI Research said in a report received Wednesday. Output will see average annual growth of about 9 percent between 2017 to 2021, according to the report.

Economic growth is forecast to pick up in about two-thirds of Asia's 45 economies, even as the pace of expansion cools in China, the Asian Development Bank said this month in its latest outlook. India's gross domestic product is forecast to grow 7.4 percent in 2017 and 7.6 percent next year, while in Southeast Asia -- which includes Vietnam and the Philippines -- growth will expand to 5 percent in 2018 from 4.8 percent this year, the report said.

“As those economies realize their growth potential there'll be demand for infrastructure, which will drive demand for steel,” Gaines said in the interview Wednesday in Sydney. “Being based in the Pilbara, we'll be very well placed to supply to those markets as and when that demand occurs.”

Fortescue declined 3 percent to A$6.11 in Sydney trading, trimming its advance in the past 12 months to about 138 percent.

A rally in iron ore since late 2015 that's swelled profits and allowed producers to trim debt and boost returns to investors is losing momentum. Prices have slumped about 15 percent since the steel-making ingredient hit a more than two-and-a-half-year high of $94.86 a ton in February. Benchmark ore in Qingdao lost 0.8 percent to $80.92 Thursday, according to Metal Bulletin Ltd.

Fortescue's efforts to more than halve cash costs in the past two years to about $12.54 a ton in the last quarter mean that it'll remain “bullet-proof” even as prices retreat, Chairman and founder Andrew Forrest said in an interview last month.

“We're not finished there, we're looking at continuing to focus on innovation, on efficiency and productivity benefits to continue to be the lowest cost producer,” Gaines said. Fortescue was ranked the lowest-cost seaborne supplier to China in a Metalytics Resource Sector Economics study, the producer said in a December filing.

Operating costs are the sector's third-lowest behind larger rivals BHP Billiton Ltd. and Rio Tinto Group, according to Bloomberg Intelligence.

Fortescue may target early repayment of $478 million of April 2022 notes that are callable from this month as it looks to extend a drive to cut debt and will also consider further options for broader changes to its borrowings, according to Gaines. The producer has cut net borrowings to about $4 billion at the end of December from a peak of $10.7 billion four years earlier.

“Part of the opportunity is looking at the remaining debt and how we might structure that,” she said. The producer is also likely to consider what it wants to do with $2.16 billion of 9.75 percent secured 2022 notes as they become callable from March next year. “Clearly that's expensive debt,” Gaines said.

To contact the reporter on this story: David Stringer in Melbourne at dstringer3@bloomberg.net.

To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net, Jake Lloyd-Smith, Keith Gosman