FMG - Fortescue Ltd

[Value Collector]

Extremely exposed to china though joeno, and china's on the entire planet's shitlist at the moment and doesn't look like coming off it any time soon.

In other words there's a lot of political risk it's exposed to, which is obviously impossible to quantitatively evaluate. I suspect its price might actually be somewhere up near what you say if not for that factor, i.e it is the political risk that's keeping it where it is.


I'm not selling though

Being exposed to the worlds second largest economy is not exactly a bad thing, I mean FMG sells Iron Ore and China is the worlds largest consumer of Iron Ore and they are basically the worlds factory, exporting products that are either made of or using steel around the globe to all the other economies large and small.

Australia wants to sell Iron Ore our government needs the taxes, and Chinese steel mills want to buy it they need it to keep their local and export market ticking, I wouldn't get to wrapped around the axels of trade war talk, the Iron ore market is like oxygen to both of our countries, neither is prepared to hold their breath for long.

Steel is used in absolutely everything, there is pretty no product or service that exists that doesn't consume steel, hence why even the Iron ore price doubling has not slowed down imports, because demand is inelastic.

The average person consumes about 400 grams of steel / day, and most of that is sourced either directly or indirectly from china, I mean even if you buy your steel from an Australian steel mill, its probably made from 95% recycled steel that was sourced from melting down a car that was made with Chinese steel, and that car needs to be replaced with another car that contains fresh Chinese steel.

Have a think about it, there is no product or service that I can think about that doesn't either directly contain steel or use steel in its supply chain or cause action that consumes steel, and 50% of the total steel made comes from china, and portion of the other 50% comes from recycled Chinese steel in other markets.

 

[Value Collector]

Have a think about it, there is no product or service that I can think about that doesn't either directly contain steel or use steel in its supply chain or cause action that consumes steel, and 50% of the total steel made comes from china, and portion of the other 50% comes from recycled Chinese steel in other markets.

Out of interest, can anybody think of a product or service that doesn't consume steel (and therefore Iron Ore) in some way?

I honestly can't think of a single thing, it leads me to think that steel / Iron Ore demand is probably a better indicator of economic activity than crude oil has been traditionally, especially now that we are moving towards more renewable energy (which consume steel also), and also because crude oil production itself consumes steel.

 

[over9k]

Being exposed to the worlds second largest economy is not exactly a bad thing, I mean FMG sells Iron Ore and China is the worlds largest consumer of Iron Ore and they are basically the worlds factory, exporting products that are either made of or using steel around the globe to all the other economies large and small.

Australia wants to sell Iron Ore our government needs the taxes, and Chinese steel mills want to buy it they need it to keep their local and export market ticking, I wouldn't get to wrapped around the axels of trade war talk, the Iron ore market is like oxygen to both of our countries, neither is prepared to hold their breath for long.

Steel is used in absolutely everything, there is pretty no product or service that exists that doesn't consume steel, hence why even the Iron ore price doubling has not slowed down imports, because demand is inelastic.

The average person consumes about 400 grams of steel / day, and most of that is sourced either directly or indirectly from china, I mean even if you buy your steel from an Australian steel mill, its probably made from 95% recycled steel that was sourced from melting down a car that was made with Chinese steel, and that car needs to be replaced with another car that contains fresh Chinese steel.

Have a think about it, there is no product or service that I can think about that doesn't either directly contain steel or use steel in its supply chain or cause action that consumes steel, and 50% of the total steel made comes from china, and portion of the other 50% comes from recycled Chinese steel in other markets.

Agreed completely. But little of this has anything to do with political risk.

As I said, I reckon if not for the political risk, FMG's price would actually be higher for all the reasons you listed above.

 

[dat111]

Agreed completely. But little of this has anything to do with political risk.

As I said, I reckon if not for the political risk, FMG's price would actually be higher for all the reasons you listed above.

For those of us who have been a buy and hold for the most part since 2004... Political risk is short lived. All governments can make bad decisions that impact business but if the business is big enough and good enough (meaning there is a need for it) the business will come back stronger than ever after the government corrects their mistake or mistakes...

 

[over9k]

Sure but that's a different thing to a trade war.

 

[Value Collector]

Agreed completely. But little of this has anything to do with political risk.

As I said, I reckon if not for the political risk, FMG's price would actually be higher for all the reasons you listed above.

What I am saying is that politicians on both sides can not afford to mess with Iron Ore, they rely on our Iron Ore just as much or maybe more than we do.

 

[over9k]

What I am saying is that politicians on both sides can not afford to mess with Iron Ore, they rely on our Iron Ore just as much or maybe more than we do.

Hmmm dunno about that.

Housing, however...

 

[Value Collector]

Hmmm dunno about that.

Housing, however...

The three Iron Ore miners BHP, RIO and FMG are some of Australia’s largest tax payers, add to that the Iron Ore royalties.

Whether the government budget is going to be in surplus or deficit each year pretty much depends on the iron ore price, same with our trade deficit, so yeah you can bet they care.

there is a reason the government gives an Iron ore price prediction in their budget each year.

 

[joeno]

Irrelevant since FMG is an Australian stock, not a Chinese one. Iron ore is in demand everywhere, not just China. China is a big market but aside from China imploding (which sure some of the people here would love to see happen) they will keep buying iron from Fortescue.

Also your statement "China is on the enire planet's shitlist" being a political risk is wrong. It doesn't matter to me whether they are or not, but it wrong factually and it would affect your ability to make financial decisions relating to China and companies that do business with China.

China is on the US/NATO's hitlist for reasons which should be obvious. Which also means it's on Australia govt's (s)hitlist as we are part of NATO. China has clear good relations with the majority of nations on this Earth. This is not bias and me wanting for it or caring about it. This is just a fact. You can look for example the UN record for countries which recognize Taiwan as a country. The majority of the world doesn't. If China was in the majority of the world's sh*tlist, they would piss China off and recognize Taiwan.

So i would argue the political risk is small even if we assume China is driving all of FMG's share price growth.

Extremely exposed to china though joeno, and china's on the entire planet's shitlist at the moment and doesn't look like coming off it any time soon.

In other words there's a lot of political risk it's exposed to, which is obviously impossible to quantitatively evaluate. I suspect its price might actually be somewhere up near what you say if not for that factor, i.e it is the political risk that's keeping it where it is.


I'm not selling though

 

[over9k]

Irrelevant since FMG is an Australian stock, not a Chinese one. Iron ore is in demand everywhere, not just China. China is a big market but aside from China imploding (which sure some of the people here would love to see happen) they will keep buying iron from Fortescue.

Also your statement "China is on the enire planet's shitlist" being a political risk is wrong. It doesn't matter to me whether they are or not, but it wrong factually and it would affect your ability to make financial decisions relating to China and companies that do business with China.

China is on the US/NATO's hitlist for reasons which should be obvious. Which also means it's on Australia govt's (s)hitlist as we are part of NATO. China has clear good relations with the majority of nations on this Earth. This is not bias and me wanting for it or caring about it. This is just a fact. You can look for example the UN record for countries which recognize Taiwan as a country. The majority of the world doesn't. If China was in the majority of the world's sh*tlist, they would piss China off and recognize Taiwan.

So i would argue the political risk is small even if we assume China is driving all of FMG's share price growth.

Right so you clearly have no idea. China is not "a big market", China buys about 2/3rds of the world's shipped iron ore. For australia specifically, it purchased 87 per cent of iron ore sold by Australian producers in 2019-20 when the value of the trade hit a record $102 billion.

It is not a big market or whatever you want to describe it as, it's as near as makes no difference the country's only market. A couple of years ago a big deal was made when FMG managed to get 11% of its exports to non-chinese customers. Leaving china being, you know, 89% of its business.


It is also primed for an implosion:

China is an incredibly precarious country and it would (will) take absolutely sweet **** all to knock over this apple cart. The rest of your post about it being on good terms with everyone etc etc is just lunacy, and the fact that it is on such bad terms with everyone whilst being so vulnerable is precisely why political risk is so significant here.

We aren't talking about a strong country with which if relations with the world go sour it won't actually effect money/business that much. We are talking about the opposite. The whole country could be brought to a virtual standstill if any one of malaysia, singapore, or indonesia decided to close its shipping routes to them just for one example of dozens.

There is no country in the world more reliant on political stability than china. None.

 

[againsthegrain]

Right so you clearly have no idea. China is not "a big market", China buys about 2/3rds of the world's shipped iron ore. For australia specifically, it purchased 87 per cent of iron ore sold by Australian producers in 2019-20 when the value of the trade hit a record $102 billion.

It is not a big market or whatever you want to describe it as, it's as near as makes no difference the country's only market. A couple of years ago a big deal was made when FMG managed to get 11% of its exports to non-chinese customers. Leaving china being, you know, 89% of its business.


It is also primed for an implosion:

View attachment 117901View attachment 117900View attachment 117903View attachment 117904View attachment 117899View attachment 117902View attachment 117905View attachment 117906

China is an incredibly precarious country and it would (will) take absolutely sweet **** all to knock over this apple cart. The rest of your post about it being on good terms with everyone etc etc is just lunacy, and the fact that it is on such bad terms with everyone whilst being so vulnerable is precisely why political risk is so significant here.

We aren't talking about a strong country with which if relations with the world go sour it won't actually effect money/business that much. We are talking about the opposite. The whole country could be brought to a virtual standstill if any one of malaysia, singapore, or indonesia decided to close its shipping routes to them just for one example of dozens.

There is no country in the world more reliant on political stability than china. None.

Chinese economy is a little like North Korean army, skeletons holding wooden gun replicas... all for show

 

[over9k]

Here's an example of what the most basic of soft power can (will) do to a chinese company.

That's just a booting off the NYSE. That's it. Just don't let people trade it as an ADR, and it's down that much. And these are two of the big ones that do most of their business in china too. Imagine a smaller company more exposed to the U.S market.

 

[Value Collector]

Chinese economy is a little like North Korean army, skeletons holding wooden gun replicas... all for show

Really... do you not think China is a manufacturing power house, walk into Bunnings and check where everything made of steel comes from, they buy 2/3rds of the worlds Iron ore for good reason, because they are the worlds factory.

Do you really think they are storing all this iron under their mattress.

if you took all the chinese made products out of Australia right now cities would literally collapse, haha.

 

[againsthegrain]

Really... do you not think China is a manufacturing power house, walk into Bunnings and check where everything made of steel comes from, they buy 2/3rds of the worlds Iron ore for good reason, because they are the worlds factory.

Do you really think they are storing all this iron under their mattress.

if you took all the chinese made products out of Australia right now cities would literally collapse, haha.

But on the flip side Chinese would starve to death, we just would go without cheap luxuries

 

[Value Collector]

Here's an example of what the most basic of soft power can (will) do to a chinese company.

View attachment 117913

That's just a booting off the NYSE. That's it. Just don't let people trade it as an ADR, and it's down that much. And these are two of the big ones that do most of their business in china too. Imagine a smaller company more exposed to the U.S market.

I will sell you a put option on your shares if you are that worried. (Serious offer)

 

[Value Collector]

But on the flip side Chinese would starve to death, we just would go without cheap luxuries

how are we going to feed ourselves with out all the Chinese made tractors, water pumps, fencing materials, refrigeration equipment, trucks and truck parts, tyres, food processing equipment, building materials for the grain silos, flour mills, blades, ovens, toasters, communication equipment etc etc

 

[againsthegrain]

how are we going to feed ourselves with out all the Chinese made tractors, water pumps, fencing materials, refrigeration equipment, trucks and truck parts, tyres, food processing equipment, building materials for the grain silos, flour mills, blades, ovens, toasters, communication equipment etc etc

Its not as straight forward as you think, those things are not "chinese" made, they are simply produced there. All the great minds of the West invested research, knowledge, intelligence and hard work to produce a final blueprint which is then created and assembled by non skilled labour in china which yes happens to have the biggest factory infrastructure in the world.. currently. Without that blueprint or idea none of these things can be made, so yes it will logistically and economically be a nightmare to manufacture elsewhere but if backed to a wall no none of our cities will collapse. Our "business man" and "salesman" might have to go back to work rather then salivating at 1000% mark-ups from slave labour operated sweat shops

 

[sptrawler]

how are we going to feed ourselves with out all the Chinese made tractors, water pumps, fencing materials, refrigeration equipment, trucks and truck parts, tyres, food processing equipment, building materials for the grain silos, flour mills, blades, ovens, toasters, communication equipment etc etc

Probably the same way we did pre 1990, which is only 30 years ago and before China was producing anything.
We would have to rebuild the blast furnaces and steel mills, that we pulled down 20 years ago and rebuild the factories that we sent to China. Probably wont be done, but if it has to be done, it will be done. Simple really, we wont go back into caves.

 

[Value Collector]

Its not as straight forward as you think, those things are not "chinese" made, they are simply produced there.

that’s got to be the silliest statement I have seen for a while.

—————
yes we have all seen the Apple phones that say “designed in California made in China”

but that in no way takes away from the fact that when you hold an iPhone it is “made in China”

No country is an island, it’s a global economy we all rely on each other to do our bit, and we can all make bucket loads of money doing it, this politics about trying to cut each other off is just silly brinkmanship.

The simple fact is that Australian standard of living is increased by having a strong trading partner like China, and anyone that says we should sacrifice that is in my opinion and idiot.

 

[Value Collector]

Probably the same way we did pre 1990, which is only 30 years ago and before China was producing anything.
We would have to rebuild the blast furnaces and steel mills, that we pulled down 20 years ago and rebuild the factories that we sent to China. Probably wont be done, but if it has to be done, it will be done. Simple really, we wont go back into caves.

pretty sure most of our farms had a lot of American and European equipment on them back then still.

whether that John Deere tractor is made in China or America doesn’t bother me, or whether the water pump is made in Berlin or bejing, but to say we have ever been close to self sufficient is just a fallacy.

If we tried to close our borders to trade we would be nothing but a banana republic no where to sell our bananas, we would be like North Korea but with more toothless bogans.