Iron ore boom slows as China looks to force down prices

The latest iron ore boom is slowing down as prices begin to fall.

The latest iron ore boom is slowing down as prices begin to fall. Photo: TND

Australia broke another export record in April as high iron ore prices flowed into rivers of gold for the mining sector, further frustrating China’s attempts to punish us for criticising their human rights policies.

But the pace of our latest export surge is slowing, spelling trouble for our economic recovery as China forces down iron ore prices.

Australian exports rose just 0.03 per cent to $35.9 billion in April, the ABS said on Tuesday, while our imports fell 7 per cent to $25.8 billion.

That pushed the trade surplus up to $10.1 billion.

The data suggests the mining boom that has poured billions of dollars into our economy during the pandemic recovery is losing its shine, with iron prices down from more than $230 a tonne during April to $208 on Tuesday.

Total metal ore exports – the category that covers iron – rose just 1 per cent to $16.5 billion in April, barely beating a record in March.

China steps up iron crackdown

The ABS data comes after China stepped up plans to force down iron ore prices last week over concern their steel mills were paying too much for Australian minerals.

Last Sunday China’s National Development and Reform Commission held meetings with its steel industry leaders, promising to punish anyone engaging in gouging, speculation or “violations” that increase prices.

That triggered a sell-off in iron ore futures, sending prices down about $9 per tonne after the meetings, with further falls expected.

Although the crackdown hasn’t flowed into trade data yet, it is soon expected to.

And it’s also not the only thing China is doing to curb reliance on our iron ore, either.

At the moment, China has no good alternative to buying Australian minerals. But it is investing heavily in finding new sources amid broader pessimism about the future of Australia-China relations.

Officials last week directed their steel mills to source more iron from central Asian countries like Kazakhstan and Russia, and renewed efforts to mine iron from within China.

But independent economist Saul Eslake is sceptical their plans will come to fruition.

“China has no near-term alternative to Western Australian iron,” he told The New Daily.

“Brazil [our nearest competitor] has ongoing problems with repairing tailing dams at its major mines and with COVID outbreaks.”

Iron slowdown will cost Australia

China’s demand for Australian iron ore is already slowing, but the trade data published by the ABS on Tuesday isn’t seasonally adjusted.

Iron exports to China rose just 0.58 per cent to $10.5 billion in April.

That was the second record in as many months after a 19.7 per cent surge in March, but April’s result was entirely due to a 4 per cent rise in prices, which offset a 1 per cent fall in the amount of iron ore shipped out.

That means China bought less Australian iron at a higher price.

Most of Australia’s export growth with China in April was actually the result of a 129 per cent increase in gold sales, which resumed after a 14-month pause and raked in an extra $282 million for miners.

But iron ore is still the main game, which makes April’s result a worrying sign for our economy, even though prices are still relatively high.

For context, the Australian government conservatively assumed that iron ore prices will be $55 a tonne when it wrote the 2021-22 budget.

But even small shifts in China’s demand for Australian iron amid its efforts to diversify supply could have a sizeable impact on prices.

Previous estimates suggest the budget makes about $500 million for every $10 increase in the iron ore price – but that goes the other way too.

Mr Eslake said Australia’s economy could suffer if China’s efforts to reduce the iron ore price begin to pay off, and he expects they will.

“They may well have some success in pushing the price down from its present levels by the sort of regulatory missions that they threatened,” he said.

Exporters finding new markets

Elsewhere, there was good news for other exporters.

Coal, barley, timber, seafood and wine exports to China are still subject to crushing import tariffs that were created last year to punish Australia for criticising its domestic policies and engaging in protectionism.

But exporters are finding new trading partners in other countries, with coal exports increasing 8.4 per cent in April and cereals (a category that includes barley), rising 5.95 per cent to $1.24 billion.

Japan offers a good example. Our exports to China’s neighbour increased $297 million in April, up 7 per cent, largely thanks to higher coal sales.

And exporters also looked to India, where an additional $116 million worth of thermal coal was sold in April, increasing total exports by 2 per cent.

Topics: China
Stay informed, daily
A FREE subscription to The New Daily arrives every morning and evening.
The New Daily is a trusted source of national news and information and is provided free for all Australians. Read our editorial charter.
Copyright © 2024 The New Daily.
All rights reserved.