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ChAFTA Case Study: Mining and Resources - Fortescue Metals Group Limited

Mining and Resources - Fortescue Metals Group Limited

Fortescue Metals Group is a global leader in the iron ore industry, recognised for its culture, innovation and industry-leading development of world-class infrastructure and mining assets in the Pilbara region of Western Australia.

Since it was founded in 2003, Fortescue has discovered and developed significant iron ore deposits and constructed some of the largest mines in the world.

The company has grown to be one of the largest iron ore producers in the world and is focused on its vision of being the safest, lowest cost, most profitable producer.

Trade with China

Fortescue is a key long-term supplier of iron ore to China and since its establishment has shipped over 500 million tonnes of iron ore to Chinese customers, underpinning China’s sustained growth through urbanisation and infrastructure development.

In 2014, Fortescue accounted for 16 per cent of China’s total iron ore imports.

Fortescue’s engagement with China encompasses four key areas:

•    Supplier of iron ore to China: supporting China’s industrialisation and urbanisation.

•    Purchaser from China: more than 50 per cent of equipment and other content for FMG’s operations sourced from China, with over $1 billion in Chinese contracts to date.

•    Partner with Chinese entities investing in Australia: Hunan Valin’s investment in Fortescue has been recognised in China as one of the most successful Chinese overseas investments in the resources sector.

•    Sponsor of educational opportunities through provision of CSU Education Scholarships and membership of the Lingnan (University) College International Advisory Board. To date, 106 scholarships and RMB 18 million in research funding has been provided.

Impact of the China–Australia Free Trade Agreement (ChAFTA)

The ChAFTA is an important milestone in the relationship between China and Australia and will further build on the strong bilateral economic relationship already in place. Fortescue has welcomed the implementation of the Free Trade Agreement as it consolidates and grows its business with Chinese customers.

Specific points to note:

•    As there is no import duty for iron ore exporting into China at present, there will be no impact on China’s import duty.

•    As China is Fortescue’s largest supplier of imported materials and equipment, its costs will reduce in line with the reduction in import duty applied to relevant imports (currently 5 per cent).

•    The agreement will make imports from China more competitive compared with supply from other countries, benefiting both Chinese exporters and Fortescue.

•    The ChAFTA will also facilitate ongoing Chinese investment into Australia, particularly from China’s private sector.

In addition, elimination of the possibility of China unilaterally creating an iron ore tax or import duty against Australia will provide Fortescue with a strong base for continuing to grow its China business.

The key benefit of ChAFTA to Australian companies doing business with China is that it assures a strong bilateral relationship, as the agreement is viewed in China as the most comprehensive FTA China has signed to date.  This strong bilateral relationship provides Fortescue with a supportive environment which will underpin its current and future business with China.