With iron ore prices still at multi-year lows, a reported interest by China's biggest steelmaker for indebted Australian iron ore miner Fortescue Metals makes business sense for both parties, depending on how much the deal is worth, analysts say.
"It's logical that Baosteel would try to secure future supply," Patersons Securities' director of research Robert Brierley told CNBC. But "I doubt Andrew (Forrest, Fortescue Group's chairman) would sell at these prices," he said.
Iron ore prices may be staggering back from 10-year year lows, but the biggest customers appear to be seeking to lock in the cheap prices by going straight to the source – and buying the miners.
China's Baosteel and CITIC, a Chinese conglomerate, have applied to Australia's Foreign Investment Review Board (FIRB) for permission to recapitalize Fortescue, reported the Australian Financial Review late on Monday.
In a statement to the Australia Stock Exchange, Fortescue said it "does not comment on speculation. Fortescue is not aware of the FIRB applications by third parties." When contacted by CNBC, the Australian Treasury, which runs FIRB, declined to comment.
Despite the statements, Fortescue's shares soared on Tuesday by as much as 15 percent and were trading up 8.99 percent in mid-day Asia trading time.
The company's stock has trailed the decline of iron ore prices: since the beginning of 2014, Fortescue's shares have dropped 58 percent while iron ore prices have fallen by 56 percent.
Baosteel's bid for Fortescue should not come as a major surprise because the China's biggest steelmaker is the Australian miner's biggest customer, analysts said.