Online Stockmarket Trading Update

Fortescue Metals Group has struck a $7.2 billion deal with the Chinese steel industry, offering to supply discounted iron ore in exchange for cheap finance and a priority place in future price negotiations.

Under the arrangement, Fortescue will provide iron ore at a 3% discount to the May benchmark price enforced by Rio Tinto and BHP Billiton.

In return for the discount, Chinese banks will be providing Fortescue with US$5.5 – $6 billion in loans, which will be used to pay off debt and boost production at the company’s Pilbara mines, with the aim of strengthening Fortescue’s position as a major player in Australia’s iron ore export market.

Both Rio and BHP have indicated the undercutting is irrelevant to their own pricing plans, however the China Iron & Steel Association said it would be using the Fortescue price in future negotiations.

ASX Code: FMG
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For more details and analysis on this news story:

• The Sydney Morning Herald: “Fortescue’s $7 billion shock deal”
• The Australian: “Fortescue Metals Group breaks China impasse”
• Fortescue Metals Group: “China Agreement on Sales Price and Volumes for 2009″