Never a dull moment with Cliffs managing director Lourenco Goncalves:
“The shift toward higher grade is there to stay, the shift toward pellets is there to stay, and BHP and Rio Tinto are on the path to become the next Fortescue, and Fortescue is already on the path to become the next Atlas,” said Mr Goncalves during an investor briefing.
Cliffs’ core iron ore business is producing pellets in the US, and the company has recently exited a marginal, low grade iron ore export operation in Western Australia which, like Atlas, had recently become loss-making on the back of Chinese demand trends.
Mr Goncalves was an activist investor who took the reins at Cliffs in August 2014 and instantly flagged his desire to exit Cliffs’ Australian asset, saying the business of exporting Australian iron ore to China was a “doomed, horrible business”.
“BHP continues to create driverless things, driverless trucks, driverless trains, driverless CEO suite, so they continue to be driverless everywhere,” he said.
Spot on as:
- China slows and changes to less commodity-intensive growth;
- the next phase of environmental reform is the rise of scrap.
I expect by the mid-2020s that Chinese steel output will be around 700mt and 200mt of that will be scrap-based meaning it only needs 800mt of iron ore. Given it will supply 150mt of that itself that means the seaborne market will contract by roughly 30% or 300mt by then.
Thus it is more accurate to say that Fortescue, Roy Hill, MinRes and just about everyone other than BHP and RIO are the “next Atlas”.
