MARKETS SPECTATOR: Decent demand ahead

Fortescue chairman Andrew Forrest says Australian companies should be optimistic about Chinese demand.

As former Australian rugby union captain Nick Farr-Jones today thanked Fortescue Metals Group chairman Andrew “Twiggy” Forrest for the iron ore his company “wonderfully dig out of the ground", the market was wondering whether Chinese demand was still there for Fortescue to adhere to its aggressive production plans.

In 2012 Chinese steelmakers bought 97 per cent of Fortescue’s iron ore. Fortescue wants to nearly double production to 115 million tons per annum. Asked by Markets Spectator today what was the outlook for iron ore demand, Forrest said: “very sound”.

Forrest said he had met Chinese President Xi Jinping in his previous roles as vice minister, minster and now as president. He said he had been impressed with Xi’s commitment to lift China out of poverty through economic policies that balance growth with an improvement in people’s lifestyles.

“China is growing strongly,” says Forrest.

While China will not grow as strongly as it did in the past, Forrest added, he still expects annual growth rates of more than 7 per cent. That, he says, means robust Chinese demand for Australian goods and services.

Critical of what he sees as Australia’s “high interest rate policy", Forrest says “global oceans of money are searching for yield". That may be good news although not necessarily for Fortescue, more likely for Australian bank stocks.

At Sydney’s Salvation Army Red Shield Appeal today, Forrest pledged $1 million if the 770 guests at a lunch matched his contribution. Perhaps his ability to write large cheques is proof of his confidence in Fortescue’s prospects.

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