Twiggy Forrest says China growth is strong

Chairman of Fortescue expects demand for iron ore to continue

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published August 2, 2013 12:40 pm AEST

Andrew 'Twiggy' Forrest, the chairman of Fortescue Metals Group (ASX:FMG) says China is growing at a faster rate than it ever has.

Raining scorn on the naysayers who have declared China's economic boom over, Mr Forrest says 7.5% growth in China's GDP in 2013 is larger than a higher percentage would have been in the past because the country's economy is much bigger now.

"It's off a huge base now so the volumetric growth is bigger than it's ever been and that's great for Australia," he told ABC TV. He also said that China's leaders had correctly called their country's growth levels accurately for 20 years.

A slowing from double-digit growth to below 8% in the past year has seen many economists and analysts warn that the resources boom is over. Iron ore prices are predicted to fall below US$100 a tonne, according to many commentators, both as a result of slowing Chinese growth and a massive surge in supply or the resource. Fortescue, Rio Tinto (ASX:RIO) and BHP Billion (ASX:BHP) have all ramped up their iron ore operations in the past couple of years, as iron ore surged to nearly US$200 a tonne from just US$20 a tonne in 2000.

So far this year, iron ore has traded around US$120 to US$130 a tonne. For the big miners like Rio, BHP and Brazil's Vale, who have production costs of between US$30-US$50 a tonne, it has made sense for them to expand output as prices fall to generate similar revenues. Rio is aiming to hit 360 million tonnes in 2015, while Vale is targeting over 400 million tonnes by 2017.

Mr Forrest says he's not worried about future iron ore demand, citing the 700 cities in China with half of them needing urban railway systems, which need steel and therefore iron ore. "You need 30,000 tonnes of steel for 1km of rail and 50,000 tonnes of Australian iron ore," he said.

Foolish takeaway

Mr Forrest also said that there are a billion people in China, who all want a standard of living similar to us – hence the demand for raw materials and resources is set to continue. That could see iron ore prices stay higher for much longer than most commentators expect.

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Motley Fool writer/analyst Mike King owns shares in BHP Billiton.

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